Emission Tax Policy Research Articles

Self-enforcing international environmental agreements and trade: taxes versus caps

We study self-enforcing international environmental agreements (IEAs) in a model with symmetric countries, international trade, and emission tax policy and find that the first-best global IEA may be self-enforcing. This is in sharp contrast to the known case of cap-and-trade policy in which self-enforcing IEAs have fewer signatories and fail to achieve significant improvements in welfare and damage reduction compared to global non-cooperation. We provide necessary and sufficient conditions for global self-enforcing IEAs and show, amongst other things, that they are more likely with less severe climate damage. Another result is that their determinants are similar for climate coalitions playing Nash or being Stackelberg leaders.

Modeling the Effects of Public Bicycle Schemes in a Congested Multi-Modal Road Network

With increasing concerns about environmental and energy issues in many large Chinese cities, local authorities are introducing public bicycle schemes to promote the use of green transportation modes. This paper proposes a novel model for investigating the effects of the public bicycle schemes in a congested multi-modal road network with auto, bus, and public bicycle travel. The decision-making process of travelers regarding travel modes and route choices is assumed to follow a hierarchical choice structure. The effects of pollution emissions by motorized vehicles (i.e., autos and buses), crowding discomfort in buses, and riding fatigue on bicycles are considered in the proposed model. The multi-modal travel choice equilibrium problem is formulated as an equivalent variational inequality problem. The existence and uniqueness of the solution of the proposed model are examined. A heuristic solution algorithm that combines a diagonalization approach and the method of successive averages is adapted to solve the proposed model. A numerical example is given to illustrate the application of the proposed model and solution algorithm. Findings are reported on the effects of the public bicycle schemes and emission tax policy on the multi-modal transportation system. The optimal public bicycle rental price and emission tax for maximization of social welfare can also be determined by the proposed model.

Sustainable pricing and production policies for two competing firms with carbon emissions tax

This paper studies the incentive for a firm’s sustainable pricing and production policies with carbon dioxide emissions tax policy. We consider two competing firms who have different operation efficiencies and produce a same product to the end-users. Based on game theory models, we derive the competing firms’ optimal pricing and production policies, and show that the high-efficiency firm will set a lower retail price than that of the low-efficiency firm, either with same carbon emissions tax or without carbon emissions tax. When the two competing firms absorbed same carbon emissions tax, we show that both of them will set higher retail price than that without carbon emissions tax, and the high-efficiency firm’s both profit reduction and carbon emissions reduction percentages are lesser than that of low-efficiency firm. In addition, we find that when a firm incurs a higher carbon emissions tax, the firm gains a higher carbon emissions reduction percentage, but the competing firm gains a lower carbon emissions reduction percentage. We also find that in order to achieve a certain desired carbon emissions reduction percentage, the carbon emissions tax imposed on the high-efficiency firm should be more than that on the low-efficiency firm.

Manufacture’s Optimal Pricing Policy and Retailer’s Optimal Ordering Policy Under Different Carbon Emission Policies

The implementation of carbon reduction policy is an important method for the firms to reduce carbon emissions. So it is of great significance to research on the firms’s trategies under different carbon reduction policies. In this paper, we study the manufacturer’s wholesale price strategy and the retailer’s ordering strategy, as well as carbon emissions policy’s impact on the production and profit, under mandatory carbon emissions capacity policy, carbon emissions tax policy and cap-and-trade policy respectively. In addition, the government’s decision-making about carbon emissions policy parameters is also discussed. The conclusion builds a microeconomic foundation for the carbon emissions policy’s design and development, and also verified the policy’s effectiveness and scientificity, at last achieved the “win-win” ofthe government and enterprises.

Emission Taxes and Border Tax Adjustments for Oligopolistic Industries

AbstractWe examine the welfare consequences of an emission tax with and without a border tax adjustment (BTA) for an imperfectly competitive industry, where intra‐industry trade arises between countries. BTA allows a government to impose a pollution‐content tariff on imports and refund an emission tax for export sales. We analyse the structure of an optimal emission tax with BTA when a government chooses its emission tax rate to maximize its national welfare. We show that the optimal emission tax policy with BTA achieves greater national welfare and higher environmental quality than the optimal policy without BTA.

Do emission subsidies reduce emission? In the context of environmental R&D organization

This paper, which reexamines the Poyago-Theotoky model, provides additional investigation that was conducted under a corrected environmental damage parameter. As new findings, we obtain the following. First, social welfare under a time-consistent emission tax (emission subsidy) policy is always welfare-enhancing rather than the case of laissez-faire. Second, if the environmental damage parameter is sufficiently small, then the equilibrium emission tax rate is invariably negative. It is therefore an emission subsidy. Moreover, total emissions under the emission subsidy scenario become less than those under laissez-faire if the damage parameter is sufficiently small, and if the R&D cost is low. However, total emissions under the emission subsidy become greater than those under laissez-faire if the damage parameter is sufficiently small, and if the R&D cost is high.

Optimal control of production-maintenance system with deteriorating items, emission tax and pollution R&D investment

It is widely acknowledged today that the control and maintenance of production inventories of deteriorating items have attracted much attention in inventory analysis because most physical goods deteriorate over time. In 2012, Bukhari and El-Gohary modelled an optimal control model of production-maintenance system with deteriorating items, and derived the optimal scheduled production rate and preventive maintenance rate. In this paper, we propose an alternative emission tax policy design, and extend the model of Bukhari and El-Goharys to an even more general model in which the emission tax and pollution R&D investment are taken into account. Our aim is to apply optimal control theory to solve the production-maintenance problem with deteriorating items, emission tax and pollution R&D investment; and derive the optimal schedule production rate, preventive maintenance rate and pollution R&D investment rate that minimise the total cost. The results are discussed with some illustrative examples for different demand rate and obsolescence rate of process performance in the absence of maintenance, and sensitivity analysis is conducted to study the effect of changing the parameters and coefficients on the objective function value.

Endogenous Timing in Strategic Environmental Policymaking

In this paper, we endogenize the timing of policymaking in a simple two-country model of strategic environmental policy. We consider a timing game in which two policymakers non-cooperatively decide their preferred sequence of moves before setting emission tax rates. We show that whether the policymakers implement emission tax policies simultaneously or sequentially crucially depends on the magnitude of environmental damages. When the damages are insignificant, the tax rates are strategic substitutes, and the simultaneous-move policymaking emerges in equilibrium. In contrast, when the damages are significant, the tax rates are strategic complements, and sequential-move policymaking emerges. We also extend the model by allowing for differences in the vulnerability to environmental damages between countries. When the differences are large, the unique equilibrium of the game is the situation where the less vulnerable country acts as a leader. In the case where multiple equilibrium emerges, the risk-dominant equilibrium is also that where the less vulnerable country leads.

A linear programming model to optimize diets in environmental policy scenarios

The objective was to develop a linear programming model to formulate diets for dairy cattle when environmental policies are present and to examine effects of these policies on diet formulation and dairy cattle nitrogen and mineral excretions as well as methane emissions. The model was developed as a minimum cost diet model. Two types of environmental policies were examined: a tax and a constraint on methane emissions. A tax was incorporated to simulate a greenhouse gas emissions tax policy, and prices of carbon credits in the current carbon markets were attributed to the methane production variable. Three independent runs were made, using carbon dioxide equivalent prices of $5, $17, and $250/t. A constraint was incorporated into the model to simulate the second type of environmental policy, reducing methane emissions by predetermined amounts. The linear programming formulation of this second alternative enabled the calculation of marginal costs of reducing methane emissions. Methane emission and manure production by dairy cows were calculated according to published equations, and nitrogen and mineral excretions were calculated by mass conservation laws. Results were compared with respect to the values generated by a base least-cost model. Current prices of the carbon credit market did not appear onerous enough to have a substantive incentive effect in reducing methane emissions and altering diet costs of our hypothetical dairy herd. However, when emissions of methane were assumed to be reduced by 5, 10, and 13.5% from the base model, total diet costs increased by 5, 19.1, and 48.5%, respectively. Either these increased costs would be passed onto the consumer or dairy producers would go out of business. Nitrogen and potassium excretions were increased by 16.5 and 16.7% with a 13.5% reduction in methane emissions from the base model. Imposing methane restrictions would further increase the demand for grains and other human-edible crops, which is not a progressive solution for an industry trying to be sustainable. However, these results might depend on the constraints and inputs used in our model (e.g., feed prices), and more extensive analyses are required before they are used in policy development. The model structure was able to incorporate effects of environmental policies in diet formulation and it can assist dairy producers in meeting limits set by these policies. The model can also assist policy makers examining the effects of policies on the dairy production system.

Environmental policy in a mixed market: abatement subsidies and emission taxes

This paper investigates the optimal subsidy for activities abating emission in a mixed market, where the state-owned public firm competes against private firms. First, we consider the case, where the government uses only the abatement subsidy as a policy instrument. We derive a formula of the optimal abatement subsidy under general assumptions. We then examine the privatization policy and compare the abatement subsidy policy to the emission tax policy under a special case, which is analytically tractable. Next, we consider several combinations of tax and subsidy. It is shown that the first-best outcome is achieved under the combined policies.

Combining coal gasification and natural gas reforming for efficient polygeneration

A techno-economic analysis of several process systems to convert coal and natural gas to electricity, methanol, diesel, and gasoline is presented. For these polygeneration systems, a wide range of product portfolios and market conditions are considered, including the implementation of a CO2 emissions tax policy and optional carbon capture and sequestration technology. A new strategy is proposed in which natural gas reforming is used to cool the gasifier, rather than steam generation. Simulations along with economic analyses show that this strategy provides increased energy efficiency and can be the optimal design choice in many market scenarios.

ON A CONSUMER-BASED EMISSION TAX POLICY

Based on a model of environmental quality differentiated products, weexplore how an emission tax charged on consumers who choose anenvironment-unfriendly good, i.e. a consumer-based emission tax policy,affects the unit emission level of the product, the environment, andconsumer and producer surplus. Then, we analyse the conditions for anoptimal consumer-based emission tax rate to exist and the properties ofthe optimal tax rate. We address these issues in the case of a partialcoverage market with a Bertrand duopoly. Furthermore, we discuss someof the assumptions of the model.

Emission Tax Policy, Relocation of Polluting Firms and Pollution Abatement Investment

Some developing countries have an incentive to relax environmental regulation in order to attract foreign direct investments. These so called “pollution havens” tempt relocation of firms from developed countries that have strict environmental regulations. The governments of developed countries must take this into consideration when they design domestic environmental policies. In this paper, I examine the emission tax policy for Cournot duopolists that relocate to another country with no emission tax. Introduction of a strategic emission tax for interruption of relocation to a “pollution haven” was found effective. However, there is still the possibility that duopolists in developed countries will relocate abroad even if the regulator pre-commits the emission tax rate. As pointed out by Petrakis and Xepapadeas [2003], the regulator faces a regulatory hold-up problem when the set-up cost of relocation is sufficiently low and environmental damage is serious. Therefore, adoption of an emission tax should only occur when the set-up costs are sufficiently large.JEL Classification: L13, L22, Q55, Q58

Optimal Tax Policy under Environmental Quality Competition

This paper studies the socially optimal emission and commodity tax policy when consumers are willing to pay a price-premium for environmentally friendlier variants of a commodity vertically differentiated in environmental quality. The first-best levels of quality can be obtained by a combination of a uniform ad valorem tax and an emission tax (or a subsidy for buying green products). The first-best emission tax is higher than the social valuation of the positive externality associated with average environmental quality. Regardless of environmentally conscious consumers, if only one instrument is available, the second-best emission tax is equal to the social valuation of the positive externality associated with average environmental quality. A uniform ad valorem tax increases welfare only if the social valuation of the positive externality associated with average environmental quality is low enough.

Freer markets and the abatement of carbon emissions: the electricity-generating sector in India

This paper develops a framework to explore the implications of trade and domestic policy distortions for the magnitude of carbon emissions and for the welfare costs of abating these emissions. An application to the electricity-generating sector in India shows that economic policy reforms can also be effective environmental policy instruments and reduce carbon emissions even in the absence of an emissions tax. This reduction in emissions is accompanied by an increase in domestic welfare, an increase in electricity output, and conservation of coal. Coordinating trade and domestic policy reform with an emissions tax policy reduces emissions further, while leading to gains in welfare that are greater than those under an emissions tax policy alone.

CO 2 emissions control : Comparing policy instruments

We use a global model to compare the economic performance of three policy instruments for controlling CO 2 emissions — period specific emission limits (limit policy), period specific taxes (tax policy), and a cumulative emissions limit (cumulative limit policy). With known costs and benefits of control, tax and limit policies are equivalent, and either is better than a cumulative limit policy. With uncertain benefits of emission reduction, tax and limit policies are equivalent. However, with uncertain costs of emission reduction, a tax policy may be better. A cumulative limit policy may occasionally perform well under uncertainty, but this is not generally the case.