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Optimality of Emission Pricing Policies Based on Emission Intensity Targets under Imperfect Competition

Hiroaki Ino and Toshihiro Matsumura ()

No 199, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This study shows the first-best optimality of an emission tax based on emission intensity targets.Emissions are taxed when a firm's emission intensity exceeds the targeted level. The literature on environmental tax shows that Pigovian tax, which internalizes negative externality, yields the first-best optimum under perfect competition, whereas the same is not true under imperfect competition. We show that even under imperfect competition, the combination of uniform emission tax and nonuniform emission intensity targets leads to the first best. The first-best uniform tax rate is always equal to the Pigovian tax. This principle can also apply to the policy combination of tradable emission permits and emission intensity targets.

Keywords: optimal taxation; emission intensity regulation; Cournot competition; Bertrand competition; renewable portfolio standard (search for similar items in EconPapers)
JEL-codes: Q58 Q48 H23 L51 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2019-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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