Market Power and Output-Based Refunding of Environmental Policy Revenues

Carolyn Fischer

Discussion Papers from Resources For the Future

Abstract: Output-based refunding of environmental policy revenues combines a tax on emissions with a subsidy to output. With imperfect competition, subsidies can discourage output underprovision. However, when market shares are significant, endogenous refunding suffers compared to a fixed subsidy. Refunding the emissions tax according to market share reduces the incentive to abate, and marginal abatement costs will not be equalized if market shares differ. In a Cournot duopoly, endogenous refunding leads to higher output, emissions, and possibly costs compared to a fixed rebate program. These results hold whether emission rates are determined simultaneously or strategically in a two-stage model.

Keywords: emissions tax; earmarking; tradable performance standards; imperfect competition; Cournot; duopoly; refunding; subsidy (search for similar items in EconPapers)
JEL-codes: H21 H23 Q2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-pbe
Date: 2003-05-01
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