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Heterogeneous firms and the environment: a cap-and-trade program

Lisa Anouliès ()

No 2015.10, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: Cap-and-trade programs are presently the cornerstone of climate change policies and proposals in many countries. I investigate the economic and environmental effects of different designs for this policy in a general equilibrium setting when firms are heterogeneous and in monopolistic competition. This study first predicts that the cap on emissions perfectly defines the environmental quality but has no effect on firms’ profits and decisions to enter or exit the market. On the contrary, increasing the share of free allocation of emissions allowances reallocates resources among firms toward the most productive ones: the initial allocation of allowances therefore impacts firms’ entry and exit decisions and aggregate economic variables but not the environment. Firm heterogeneity magnifies this economic effect of a change in the initial allocation of allowances.

Keywords: Emissions trading; Heterogeneous firms; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: Q58 D43 H23 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2015-05
New Economics Papers: this item is included in nep-bec, nep-ene, nep-env, nep-int, nep-reg and nep-res
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http://faere.fr/pub/WorkingPapers/Anoulies_FAERE_WP2015.10.pdf First version, 2015 (application/pdf)

Related works:
Journal Article: Heterogeneous firms and the environment: a cap-and-trade program (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fae:wpaper:2015.10

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