Market Power and Instrument Choice in Climate Policy

Mbéa Bell and Sylvain Dessy

Cahiers de recherche from Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques

Abstract: This paper compares a clean energy standard (CES) and a carbon tax (CT), using theory and quantitative experiments. A two-stage duopolistic competition in the electricity sector between a polluting plant and its non-polluting rival anchors the model underlying these experiments. The CT induces both plants to contribute to clean electricity, whereas the CES only incentivizes the non-polluting plant. Ultimately, what matters for the ranking of these instruments is the size of the pre-existing competitive gap between the two rival plants. When this gap is sufficiently small, the CES becomes the more cost-effective instrument, irrespective of the pre-specified emissions reduction target.

Keywords: Electricity; Cost-effectiveness; Duopoly; Innovation; Quantitative analysis. (search for similar items in EconPapers)
JEL-codes: H20 H32 L13 L51 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-com, nep-ene, nep-env, nep-ind, nep-pub and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:crrecr:1704

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