Environmental Protection, Public Finance Requirements and the Timing of Emission Reductions

Elettra Agliardi and Luigi Sereno ()
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Luigi Sereno: Department of Economics, University of Bologna

Working Paper series from Rimini Centre for Economic Analysis

Abstract: The effects of four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed. The setup is a real option model where the amount of emissions is determined by solving the firm's profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government spending. In this framework, we find the ranking of the alternative policy options in terms of their adoption lag and social welfare. We show that when the output demand is elastic emission standards are preferred to freely allocated permits. Taxes and auctioned permits are always equivalent in terms of their adoption lag and social welfare and also equivalent to emission standards when the regulator redistributes revenues.

Keywords: Environmental policies; Taxes; Emission standards; Permits; Public abatement spending; Optimal implementation time; Real options (search for similar items in EconPapers)
JEL-codes: H23 L51 Q28 Q48 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
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Citations: View citations in EconPapers (1)

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Journal Article: Environmental protection, public finance requirements and the timing of emission reductions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:53_11

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