Policy reform of emission taxes and environmental research and development incentives in an international Cournot model with product differentiation

Abstract

This paper studies multilateral and unilateral policy reforms of environmental R&D subsidies and emission taxes in a two-country Cournot model with oligopolistic interdependence. The analysis indicates, inter alia, that there is a potential family of multilateral and unilateral policy reforms which can be set by pollution-intensive and pollution-moderate countries to reduce global emissions. In particular, the analysis suggests that a unilateral increase in the subsidy in the pollution-moderate country may reduce global emissions. The multilateral policy reform of the subsidy and tax in the pollution-intensive country can also reduce global emissions and increase welfare under certain conditions. The role of product differentiation in the context of policy reform is also examined. member countries. See http://www.ret.gov.au/Documents/app/default.html. McGinty and de Vries (2009) point out the importance of further research on subsidies in the context of environmental policy. Additionally, it will be clear throughout the paper that the present analysis of multilateral policy is relevant to the case of countries/industries with different pollution intensity coefficients; data on pollution intensity coefficients across countries/industries can be found in US Department of Commerce (2010) and the Global Energy Statistical Yearbook.

Cross-country Emission Tax Effect of Mergers

“…Since we are assuming asymmetry in pollution intensities across but not within countries, changes in global emissions due to a change in k depend on asymmetries in pollution intensities across countries and changes in output within and across countries. Consistent with previous studies, an increase in the emission tax in one country lowers emissions in that country (via lower output and higher abatement induced by the tax), but raises emissions in the other country via higher output in that country (e.g., Gautier, 2013, 2014, 2017; Lahiri and Symeonidis, 2007). We summarize these results in the following remark.…”

Emission Taxes and Product Differentiation in the Presence of Foreign Firms

“…More formally, let so that for ; . Notice that this structure does not endogenize the ability of firms to become more or less pollution‐intensive, and in so doing I assume away issues about the strategic decision of firms on pollution abatement or environmental R&D, which the literature has touched on (e.g., Ulph; Montero , ; Ulph and Ulph ; Gautier , ). However, by assuming pollution intensity coefficients to depend positively on γ I introduce a new channel whereby an exogenous change in the degree of product differentiation alters emissions.…”

Research on the influence of product differentiation and emission reduction policy on CO2emissions of China’s iron and steel industry

“…Yakita and Yamauchi (2011) studied the environmental R&D strategy of enterprises in the duopoly model with horizontal differentiation and found that when the degree of product differentiation is large, the spillover of environmental R&D cooperation technology reduces the total social emission level. Gautier (2014) studied the role of product differentiation in the environmental policy reforms of two countries and found that reductions in foreign subsidies reduce country profits, production and pollution emissions as product differentiation increases. Kugler and Verhoogen (2012) found that there is a positive relationship between the scale of the enterprise and the output price in heterogeneous industries, but this relationship does not exist in homogeneous industries.…”