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Optimality of Emission Pricing Policies Based on Emission Intensity Targets under Imperfect Competition

Author

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  • Hiroaki Ino

    (School of Economics, Kwansei Gakuin University)

  • Toshihiro Matsumura

    (Institute of Social Science, The University of Tokyo)

Abstract

This study shows the first-best optimality of an emission tax based on emission intensity targets.Emissions are taxed when a firm's emission intensity exceeds the targeted level. The literature on environmental tax shows that Pigovian tax, which internalizes negative externality, yields the first-best optimum under perfect competition, whereas the same is not true under imperfect competition. We show that even under imperfect competition, the combination of uniform emission tax and nonuniform emission intensity targets leads to the first best. The first-best uniform tax rate is always equal to the Pigovian tax. This principle can also apply to the policy combination of tradable emission permits and emission intensity targets.

Suggested Citation

  • Hiroaki Ino & Toshihiro Matsumura, 2019. "Optimality of Emission Pricing Policies Based on Emission Intensity Targets under Imperfect Competition," Discussion Paper Series 199, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:199
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    Cited by:

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    10. Ino, Hiroaki & Matsumura, Toshihiro, 2024. "Are fuel taxes redundant when an emission tax is introduced for life-cycle emissions?," Economics Letters, Elsevier, vol. 241(C).
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    More about this item

    Keywords

    optimal taxation; emission intensity regulation; Cournot competition; Bertrand competition; renewable portfolio standard;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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