Abstract
This paper investigates upon the effects of taxation on firm investment behaviour in presence of alternative energy (oil) saving technologies and scarce resources in competitive markets. Socially optimal policies are compared to a decentralized regulatory framework: the paper shows that taxation affects the adoption of different energy saving technologies hence the aggregate amount of energy saving. To our knowledge, there are few works that underline the relationship between environmental policies and firms’ incentives to adopt oil saving technologies. For this reason, we follow the theoretical literature focusing on the effects of environmental policy applied to pollution and climate change by adapting it to the energy saving perspective. We perform a static comparison of environmental policies to show that different levels of the same instrument lead to different results in terms of the number of firms adopting energy saving technologies; multiple equilibrium are possible but there is only one which is socially optimal.
Highlights
In the last decade, debates around environmental economics and policy have become increasingly permeated by issues related to technological change
Optimal policies are compared to a decentralized regulatory framework: the paper shows that taxation affects the adoption of different energy saving technologies the aggregate amount of energy saving
In particular the literature has focussed on the comparison of alternative policy instruments targeted to reduce social costs, paying specially attention to pollution and climate change, rather than to energy saving
Summary
Debates around environmental economics and policy have become increasingly permeated by issues related to technological change. In the first one, called ex-ante optimal policy, we assume that the regulator makes a commitment both to the choice and level of his policy instrument In this case the regulator moves at first, while the firms invest in the second stage, after observing the new tax rate and decide for the possible adoption of the new technology. In the second strategy, named ex post optimal policy, we are going to assume that, before the game starts, the regulator makes a commitment to the choice of his policy instrument only, we are focusing on taxation only She observes how many firms invest in the first stage and she chooses the level of the instrument.
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