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Emissions Trading, Firm Heterogeneity, and Intra-industry Reallocations in the Long Run

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  • Yoshifumi Konishi
  • Nori Tarui

Abstract

Design of environmental regulation has substantial implications for size distribution and mass of firms within and across industries in the long run. In a general equilibrium model that accounts for endogenous entry and exit of heterogeneous firms, the welfare impacts of emissions trading are analytically decomposed into the effects on economy-wide income, mass of firms, firm size distribution, output price markups, and factor prices. Distortionary impacts on size distribution and permit price depend on the conditionality of permit distribution, interactions between changes in entry-exit conditions and in aggregate accounting conditions, the factor intensity of entry, and coverage of non-pollution-intensive sectors in emissions trading.

Suggested Citation

  • Yoshifumi Konishi & Nori Tarui, 2015. "Emissions Trading, Firm Heterogeneity, and Intra-industry Reallocations in the Long Run," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(1), pages 1-42.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/679905
    DOI: 10.1086/679905
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    Cited by:

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    2. Li, Haoyang & Wu, Nan, 2022. "Emission pricing, emission rebound, and the coverage scope of incomplete regulations," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    3. LaPlue, Lawrence D., 2019. "The environmental effects of trade within and across sectors," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 118-139.
    4. Jing Cao & Larry D. Qiu & Mohan Zhou, 2016. "Who invests more in advanced abatement technology? Theory and evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(2), pages 637-662, May.
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    6. Cheng, Haitao, 2024. "Domestic versus international emissions trading with capital mobility," Resource and Energy Economics, Elsevier, vol. 77(C).
    7. Andersen, Dana C., 2016. "Accounting for Firm Exit and Loss of Variety in the Welfare Cost of Regulations," Working Papers 2016-9, University of Alberta, Department of Economics.
    8. Coria, Jessica & Kyriakopoulou, Efthymia, 2018. "Environmental policy, technology adoption and the size distribution of firms," Energy Economics, Elsevier, vol. 72(C), pages 470-485.
    9. Cui, Xin & Wang, Panpan & Sensoy, Ahmet & Nguyen, Duc Khuong & Pan, Yuying, 2022. "Green Credit Policy and Corporate Productivity: Evidence from a Quasi-natural Experiment in China," Technological Forecasting and Social Change, Elsevier, vol. 177(C).
    10. Jevan Cherniwchan & Brian R. Copeland & M. Scott Taylor, 2017. "Trade and the Environment: New Methods, Measurements, and Results," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 59-85, September.
    11. Hartmut Egger & Udo Kreickemeier & Philipp M. Richter, 2021. "Environmental Policy and Firm Selection in the Open Economy," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(4), pages 655-690.
    12. Dana C. Andersen, 2020. "Default Risk, Productivity, and the Environment: Theory and Evidence from U.S. Manufacturing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 677-710, April.
    13. M. Scott Taylor, "undated". "Trade and the Environment: New Methods, Measurements, and Results NBER Working Paper No. 22636," Working Papers 2016-46, Department of Economics, University of Calgary, revised 01 Dec 2016.
    14. Kefu Lin & Rui Pan & Dao-Zhi Zeng, 2024. "Carbon tax vs. emission trading in a monopolistically competitive market with heterogeneous firms," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 73(2), pages 825-848, August.
    15. Jota Ishikawa & Kazuharu Kiyono & Morihiro Yomogida, 2024. "Emissions Trading and International Trade," Contributions to Economics, in: Sugata Marjit & Biswajit Mandal (ed.), International Trade, Resource Mobility and Adjustments in a Changing World, chapter 0, pages 147-175, Springer.
    16. Anouliès, Lisa, 2017. "Heterogeneous firms and the environment: a cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 84-101.
    17. Andersen, Dana C., 2018. "Accounting for loss of variety and factor reallocations in the welfare cost of regulations," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 69-94.
    18. Hamaguchi, Yoshihiro, 2023. "Environmental tax evasion as a determinant of the Porter and pollution haven hypotheses in a corrupt political system," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 610-633.
    19. Dardati, Evangelina & Saygili, Meryem, 2020. "Aggregate impacts of cap-and-trade programs with heterogeneous firms," Energy Economics, Elsevier, vol. 92(C).
    20. Estay, Manuel & Stranlund, John K., 2022. "Entry, location, and optimal environmental policies," Resource and Energy Economics, Elsevier, vol. 70(C).
    21. Yoshihiro Hamaguchi, 2024. "Whether to Abolish or Introduce Dual Regulation as Trade and Environmental Policy?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 32(1), pages 57-95, January.

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    More about this item

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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