The optimal fuel and emission tax combination for life -cycle emissions under imperfect competition

Hiroaki Ino and Toshihiro Matsumura

No 65, TUPD Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: This study examines the optimal combination of emission and fuel taxes for reducing greenhouse gas emissions in oligopolies. Greenhouse gases are emitted at both the production and consumption stages (life-cycle emissions). When consumers decide how much to use products, heavier taxes should be imposed on fuel consumption than on production. In other words, a strictly positive fuel tax is necessary in addition to an effective emission tax. The combination of taxes for polluters (emission and fuel taxes) may achieve first-best optimality under market power without any explicit subsidies. We also show that the optimal fuel tax converges to zero when the number of producers becomes sufficiently large.

Pages: 29 pages
Date: 2025-03
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https://hdl.handle.net/10097/0002003550

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Persistent link: https://EconPapers.repec.org/RePEc:toh:tupdaa:65

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