Market power and output-based refunding of environmental policy revenues

Carolyn Fischer

Resource and Energy Economics, 2011, vol. 33, issue 1, 212-230

Abstract: Output-based refunding of environmental policy revenues combines a tax on emissions with a production subsidy, typically in a revenue-neutral fashion. With imperfect competition, subsidies can alleviate output underprovision. However, when market shares are significant, endogenous refunding reduces abatement incentives and the marginal net tax or subsidy. If market shares differ, marginal abatement costs will not be equalized, and production is shifted among participants. In an asymmetric Cournot duopoly, endogenous refunding leads to higher output, emissions, and overall costs compared with a fixed rebate program targeting the same emissions intensity. These results hold whether emissions rates are determined simultaneously with output or strategically in a two-stage model.

Keywords: Emissions; tax; Earmarking; Rebating; Tradable; performance; standards; Imperfect; competition; Cournot (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (41)

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Related works:
Working Paper: Market Power and Output-Based Refunding of Environmental Policy Revenues (2003)
Working Paper: Market Power and Output-Based Refunding of Environmental Policy Revenues (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:33:y:2011:i:1:p:212-230

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