The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty

Abstract

The e¤ects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the …rm's pro…t maximization problem under taxes and …xed quotas. We …nd that the optimal adoption threshold under taxes is always larger than the adoption threshold under …xed quota, even in a setting characterized by ecological uncertainty and ambiguity -in the form of Choquet-Brownian motionson future costs and bene…ts over adopting environmental policies.

On the Optimal Timing of Switching from Non-Renewable to Renewable Resources: Dirty vs Clean Energy Sources and the Relative Efficiency of Generators

“…Let us assume that the initial stock of resource is R 2 = 55 10 9 barrels of water. At this level of the stock of renewable resource the critical switching threshold is 2 e. Now, let us assume that the stock of renewable resource R 2 increase from 55 10 9 to 100 10 9 barrels of water. For example let us assume that the energy producer chooses a greater hydropower plant, i.e.…”

Are Green Taxes a Good Way to Help Solve State Budget Deficits?

“…Note that tradable permits that are auctioned rather than distributed free of charge could also address environmental externalities and raise revenue (see Fullerton et al [12]). However, although taxes and permits can yield identical resource allocations under some conditions, more generally the effects of these and other policy instruments (such as freely allocated tradable permits or emissions standards) depend on a number of factors, including market structures, the extent and nature of uncertainty, and the degree of irreversibility of investments in abatement technologies (see, for example, Agliardi and Sereno [39], Coria [40], Montero [41,42] and Van Soest [43]). …”