Robust technology policy against emission leakage: The case of upstream subsidies

Carolyn Fischer, Mads Greaker*, Knut Einar Rosendahl

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Asymmetric regulation of a global pollutant between countries can alter the competitiveness of industries and lead to emissions leakage, which hampers countries’ welfare. In order to limit leakage, governments consider supporting domestic trade-exposed firms by subsidizing their investments in abatement technology. The suppliers of such technologies tend to be less than perfectly competitive, particularly when both emissions regulations and advanced technologies are new. In this context of twin market failures, we consider the relative effects and desirability of subsidies for abatement technology. We find a more robust recommendation for upstream subsidies than for downstream subsidies. Downstream subsidies tend to increase global abatement technology prices, reduce pollution abatement abroad and increase emission leakage. On the contrary, upstream subsidies reduce abatement technology prices, and hence also emissions leakage.

Original languageEnglish
Pages (from-to)44-61
Number of pages18
JournalJournal of Environmental Economics and Management
Volume84
DOIs
Publication statusPublished - 1 Jul 2017

Keywords

  • Abatement subsidies
  • Asymmetric carbon taxes
  • Emission leakage
  • Strategic environmental policy

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