Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation

Stephen Holland

Journal of Environmental Economics and Management, 2012, vol. 63, issue 3, 375-387

Abstract: The best emissions tax or emissions cap may be an inferior instrument under incomplete regulation (leakage). Without leakage, an intensity standard (regulating emissions per unit of output) is inferior due to an implicit output subsidy. This inefficiency can be eliminated by an additional consumption tax. With leakage, an intensity standard can dominate the optimal emissions tax, since the implicit output subsidy prevents leakage. The addition of a consumption tax improves an intensity standard's efficiency, may prevent leakage, and may be efficient. Comparing intensity standards to output-based updating shows that the latter dominates if updating is sufficiently flexible.

Keywords: Intensity standards; Externality; Emissions trading; Emissions taxes; Leakage; Incomplete regulation; Market power (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (120)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:63:y:2012:i:3:p:375-387

DOI: 10.1016/j.jeem.2011.12.002

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