Refunding Emissions Taxes

the case for a three-part policy

Philippe Bontems


This paper examines theoretically whether by combining both output based refunding and abatement expenditures based refunding it is possible to limit the negative consequences that a pollution tax imply for a polluting industry. We show that this is indeed the case by using a three-part policy where emissions are subject to a fee and where output and abatement expenditures are subsidized. When the industry is homogenous, it is possible to replicate the standard emission tax outcome by inducing a polluting firm to choose the production and emission levels obtained under any emission tax, without departing from budget balance. By construction, any polluter earns strictly more than under the standard tax alone without rebate, making this proposal more acceptable to the industry. When firms are heterogenous, the refunding policy needed to replicate the standard emission tax outcome is personalized in the sense that at least the output subsidy should be type dependent and it is strictly prefered only from the industry's point of view to a standard environmental tax. We also explore the implications of uniform three-part refunding policies for a heterogenous industry.


refunded emission taxes; regulation design; pollution;

Codes JEL

  • H23: Externalities • Redistributive Effects • Environmental Taxes and Subsidies
  • Q52: Pollution Control Adoption Costs • Distributional Effects • Employment Effects
  • Q58: Government Policy


Philippe Bontems, « Refunding Emissions Taxes: The Case For A Three-Part Policy », TSE Working Paper, n° 17-832, juin 2017, révision octobre 2018.


Philippe Bontems, « Refunding Emissions Taxes: the case for a three-part policy », The B. E. Journal of Economic Analysis & Policy (Advances), vol. 19, n° 2, avril 2019.

Voir aussi

Publié dans

The B. E. Journal of Economic Analysis & Policy (Advances), vol. 19, n° 2, avril 2019