Environmental controls, scarcity rents, and pre-existing distortions

Fullerton, Don; Metcalf, Gilbert E.

doi:10.1016/s0047-2727(00)00087-6

Cited by 174 publications

(35 citation statements)

References 28 publications

(8 reference statements)

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“…In general, with two-stage Cournot competition, players at-tempt to raise their rival's marginal cost and lower their own, in order to have a market-share advantage. 9 Here, the strategy is not only in terms of abatement costs, but also the tax and subsidy. We consider the problem from the point of view of firm 1, recognizing that 2's problem is a mirror image.…”

Section: Two-stage Gamementioning

confidence: 99%

Market power and output-based refunding of environmental policy revenues

Fischer

2011

Resource and Energy Economics

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Output-based refunding of environmental policy revenues combines a tax on emissions with a subsidy to output. With imperfect competition, subsidies can discourage output underprovision. However, when market shares are significant, endogenous refunding suffers compared to a fixed subsidy. Refunding the emissions tax according to market share reduces the incentive to abate, and marginal abatement costs will not be equalized if market shares differ. In a Cournot duopoly, endogenous refunding leads to higher output, emissions, and possibly costs compared to a fixed rebate program. These results hold whether emission rates are determined simultaneously or strategically in a two-stage model.

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Section: Two-stage Gamementioning

confidence: 99%

Market power and output-based refunding of environmental policy revenues

Fischer

2011

Resource and Energy Economics

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“…It is clear that not selling permits (at auction, say) entails a significant loss of government revenue which could potentially be more productively employed in other ways. 6 In particular, revenue raised from the sale of permits could allow for the reduction of distortionary taxes imposed on other parts of the economy; this "revenue recycling effect" is important when evaluating the benefits of an ETS (see Fullerton and Metcalf (2001) and Bovenberg, Goulder, and Gurney (2005)). Furthermore, just as a firm's incentive to reduce emissions is unaffected by the free allocation of permits, its incentive to raise prices in response to the higher marginal cost is also unaffected by the free allocation of permits.…”

Section: Introductionmentioning

confidence: 99%

“…9 Chief among our assumptions is that permit allocations affect firm profits, but not firm behavior. This will be violated in situations where the market for permits is not significantly broader than the product market; Hahn (1985) and Liski and Montero (2006) consider market power in the emissions market, motivated by the markets for acid rain and particulates.…”

Section: Introductionmentioning

confidence: 99%

“…Section 2 discusses some general principles underlying profit-neutral permit allocations for general monopoly and oligopoly settings. Section 3 examines the impact of an ETS on a Cournot industry in terms 9 See also Tietenberg (2006) for a careful summary of these points. 10 Clearly, the presence of transaction costs also means that initial permit allocations have strategic consequences (Stavins, 1995), although there is some evidence of transaction costs being low in the US sulfur dioxide scheme (see Joskow, Schmalensee, and Bailey, 1998 of firms' outputs, costs, emissions, and market price.…”

Section: Introductionmentioning

confidence: 99%

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Emissions trading with profit-neutral permit allocations

Hepburn¹,

Quah²,

Ritz³

2013

Journal of Public Economics

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This paper examines the operation of an emissions trading scheme (ETS) in a Cournot oligopoly. We study the impact of the ETS on industry output, price, costs, emissions, and profits. In particular, we develop formulae for the number of emissions permits that have to be freely allocated to firms in order to neutralize any adverse impact the ETS may have on profits. These formulae tell us that the profit impact of the ETS is usually limited. Indeed, under quite general conditions, industry profits are preserved so long as firms are freely allocated a fraction of their total demand for permits, with this fraction being lower than the industry's Herfindahl index.JEL Classification Numbers: D43, H23, Q58

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“…Kaplow (1996) showed that in the presence of distortionary taxes, taxes based on marginal benefits can in principle finance public goods without additional distortionary costs, and he applied this idea to environmental taxes, which produce the public good of environmental quality. Fullerton and Metcalf (2001) found that environmental taxes and other forms of regulation can create rents, which when taxed away lower the distortionary cost of the tax system, compared with forms of regulation that leave the rents with the producers. Both papers are related to ours, but neither addresses the extension of Sandmo's observation or the parallel with lump-sum taxes.…”

Section: But In a Parallel Theorem 3 Identifies An Equivalence Relatmentioning

confidence: 99%

Distortionary, Non-Distortionary, and Distributional Properties of Environmental Taxes: Extension of Sandmo's Observation

Page

Zhang

2003

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe find a limited parallel between lump-sum taxes and environmental taxes.Corollary 2, which extends Sandmo's observation, shows that appropriated corrective revenues have the same non-distortionary effects as lump-sum taxes, the result reducing to the original observation when the appropriated corrective revenues meet the revenue need and achieve first-best efficiency with other taxes set at zero.Corollary 1 finds that when the corrective part of environmental taxes is used as marginal damage compensation, the non-corrective part is distortionary and symmetric with ordinary proportional labor taxes in second-best equilibria.The extension of Sandmo's observation suggests that environmental taxes may be among the least distortionary taxes in the tax system.

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Environmental controls, scarcity rents, and pre-existing distortions

Cited by 174 publications

References 28 publications

Market power and output-based refunding of environmental policy revenues

Market power and output-based refunding of environmental policy revenues

Emissions trading with profit-neutral permit allocations

Distortionary, Non-Distortionary, and Distributional Properties of Environmental Taxes: Extension of Sandmo's Observation

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