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Revisiting the environmental subsidy in the presence of an eco-industry

Author

Listed:
  • Maia David

    (INRA)

  • Bernard Sinclair-Desgagné

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper re-considers environmental subsidies in the context where polluting firms procure their abatement goods and services from a specialized oligopoly. To maximize social welfare, the regulator must then simultaneously alleviate two distortions: one that comes from pollution and the other that is due to the environment firms' market power. We find that combining an emission tax to a subsidy to polluters cannot lead to first-best, while the opposite conclusion holds if the subsidy is granted instead to environment firms. When public transfers are themselves subject to distortions, however, welfare may be higher if only an emission tax is used.

Suggested Citation

  • Maia David & Bernard Sinclair-Desgagné, 2007. "Revisiting the environmental subsidy in the presence of an eco-industry," Working Papers hal-00243054, HAL.
    • Handle: RePEc:hal:wpaper:hal-00243054
    Note: View the original document on HAL open archive server: https://hal.science/hal-00243054
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    References listed on IDEAS

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    1. Ian W.H. Parry, 2002. "A Second-Best Analysis of Environmental Subsidies," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 28, pages 555-572, Edward Elgar Publishing.
    2. Lerner, Abba P, 1972. "Pollution Abatement Subsidies," American Economic Review, American Economic Association, vol. 62(5), pages 1009-1010, December.
    3. Alain-Désiré Nimubona & Bernard Sinclair-Desgagné, 2013. "The Pigouvian Tax Rule in the Presence of an Eco-Industry," Economics Bulletin, AccessEcon, vol. 33(1), pages 747-752.
    4. Joan Canton & Antoine Soubeyran & Hubert Stahn, 2008. "Environmental Taxation and Vertical Cournot Oligopolies: How Eco-industries Matter," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(3), pages 369-382, July.
    5. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, September.
    6. Fullerton Don & Mohr Robert D., 2003. "Suggested Subsidies are Sub-optimal Unless Combined with an Output Tax," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-20, January.
    7. Mads Greaker, 2004. "Industrial Competitiveness and Diffusion of New Pollution Abatement Technology - a new look at the Porter-hypothesis," Discussion Papers 371, Statistics Norway, Research Department.
    8. Eberhard Feess & Gerd Muehlheusser, 2002. "Strategic Environmental Policy, Clean Technologies and the Learning Curve," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(2), pages 149-166, October.
    9. Carlo Carraro & Gilbert E. Metcalf, 2001. "Behavioral and Distributional Effects of Environmental Policy," NBER Books, National Bureau of Economic Research, Inc, number carr01-1.
    10. Stranlund, John K., 1997. "Public Technological Aid to Support Compliance to Environmental Standards," Journal of Environmental Economics and Management, Elsevier, vol. 34(3), pages 228-239, November.
    11. Fredriksson, Per G., 1998. "Environmental policy choice: Pollution abatement subsidies," Resource and Energy Economics, Elsevier, vol. 20(1), pages 51-63, March.
    12. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
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    Cited by:

    1. Mabrouk, R. & Kurtyka, O., 2020. "Strategic use of environmental innovation in vertical chains and regulatory attitudes," Working Papers 2020-13, Grenoble Applied Economics Laboratory (GAEL).

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    More about this item

    Keywords

    Environment industry; Environmental subsidies; Pigouvian tax; Subvention environnementale; Taxe pigouvienne; Eco-industrie;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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