Abstract
This paper compares, qualitatively and quantitatively, the welfare effects of emissions taxes, auctioned emissions permits, and free (grandfathered) permits, when technological innovation is endogenous. We find that there is no unambiguous case for preferring any of these policy instruments. The relative welfare ranking of instruments depends on the costs of innovation, the extent to which innovations can be imitated, the slope and level of the marginal environmental benefit function, and the number of polluting firms. We illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not.
| Original language | English |
|---|---|
| Pages (from-to) | 523-545 |
| Number of pages | 23 |
| Journal | Journal of Environmental Economics and Management |
| Volume | 45 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - May 2003 |
Funding
We are grateful to Tim Brennan, Raymond Prince, Mike Toman, and three referees for helpful comments and suggestions. We also thank the Environmental Protection Agency (Grant CX 82625301) for financial support.
Keywords
- Environmental policies
- Externalities
- Technological innovation
- Welfare impacts
