Working paper

Refunding Emissions Taxes

The Case For A Three-Part Policy

Philippe Bontems

Abstract

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 actually show that this is indeed the case by using such a three-part policy where emissions are subject to a fee and where output and abatement expenditures are subsidized. In particular, 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 highly 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 out- put subsidy should be type dependent. Another result is that this three-part policy 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 re- funding policies for a heterogenous industry.

Keywords

refunded emission taxes; regulation design; pollution;

JEL codes

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

Reference

Philippe Bontems, Refunding Emissions Taxes: The Case For A Three-Part Policy, TSE Working Paper, n. 17-832, June 2017.

See also

Published in

TSE Working Paper, n. 17-832, June 2017