Emissions Taxes and Abatement Regulation under Uncertainty

Vidar Christiansen and Stephen Smith

No 4121, CESifo Working Paper Series from CESifo

Abstract: We consider environmental regulation in a context where firms invest in abatement technology under conditions of uncertainty about subsequent abatement cost, but can subsequently adjust output in the light of true marginal abatement cost. Where an emission tax is the only available instrument, policy faces a trade-off between the incentive to invest in abatement technology and efficiency in subsequent output decisions. More efficient outcomes can be achieved through combined use of tax and mandated use of a given abatement technology or through combining the tax with an abatement technology investment subsidy. We compare the properties of the two potential supplements to the emissions tax.

Keywords: externalities; Pigouvian taxes; subsidies; regulation (search for similar items in EconPapers)
JEL-codes: H23 (search for similar items in EconPapers)
Date: 2013
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Journal Article: Emissions Taxes and Abatement Regulation Under Uncertainty (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4121

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