Is emission intensity or output U-shaped in the strictness of environmental policy?

Dijkstra, Bouwe R. and Gil-Moltó, Maria J. (2017) Is emission intensity or output U-shaped in the strictness of environmental policy? Journal of Public Economic Theory . ISSN 1467-9779

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Abstract

We show that, in a range of market conditions, an ever stricter environmental policy does not always lead to ever cleaner production methods and ever lower production of polluting goods. We consider an integrated technology, where firms can reduce their emission intensities in a continuous fashion. Analogous to the previous literature we find that firms' emission intensities can be U-shaped in the strictness of policy, but we show that this applies only under low profitability conditions. Under high profitability conditions, output levels are U-shaped in the strictness of the policy. The latter result is new in the literature. In the case where the U-shape arises in emission intensities, the minimum is reached where the marginal abatement cost curves intersect.

Item Type: Article
Additional Information: This is the pre-peer reviewed version of the following article: Dijkstra BR, Gil-Moltó MJ. Is emission intensity or output U-shaped in the strictness of environmental policy? Journal of Public Economic Theory. 2017; 00:1–25. https://doi.org/10.1111/jpet.12277, which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/jpet.12277/abstract;jsessionid=2F11DD4FBEC111927AFFD646983D0CCD.f02t03? This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Keywords: Abatement; Environmental taxation; Oligopoly; Marginal abatement costs
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
Identification Number: 10.1111/jpet.12277
Depositing User: Dijkstra, Bouwe
Date Deposited: 24 Nov 2017 14:01
Last Modified: 27 Nov 2017 10:20
URI: http://eprints.nottingham.ac.uk/id/eprint/48330

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