The Choice of Environmental Policy Instruments: Energy Efficiency and Redistribution

Alexander Haupt (alexander.haupt@plymouth.ac.uk) and Magdalena Stadejek

No 2986, CESifo Working Paper Series from CESifo

Abstract: We analyse optimal environmental policies in a market that is vertically differentiated in terms of the energy efficiency of products. Considering energy taxes, subsidies to firms for investment in more eco-friendly products, and product standards, we are particularly interested in how distributional goals in addition to environmental goals shape the choice of policy instruments. Surprisingly, we find that an industry-friendly government levies an energy tax to supplement a lax product standard, but shies away from subsidies to firms. By contrast, a consumer-friendly government relies heavily on a strict product standard and in addition implements a moderate subsidy to firms, but avoids energy taxes.

Keywords: energy tax; energy efficiency standard; subsidy; vertically differentiated markets; product quality (search for similar items in EconPapers)
JEL-codes: L13 L15 L50 Q48 Q58 (search for similar items in EconPapers)
Date: 2010
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