Environmental Policy When Market Structure and Plant Locations are Endogenous

Markusen, James R.; Morey, Edward R.; Olewiler, Nancy

doi:10.1201/9781420032628.ch4

Cited by 102 publications

(145 citation statements)

References 26 publications

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“…One basic argument in this literature is that mobile firms relocate their plants to countries with low environmental regulation, thereby giving countries the incentive to choose inefficiently lax environmental policy (e.g. Markusen et al 1993Markusen et al , 1995Motta and Thisse 1994;Hoel 1997;Ulph and Valentini 2001). This argument is similar to our inefficiency result in case the green subsidy is not available.…”

Section: Introductionsupporting

confidence: 70%

Subsidizing renewable energy under capital mobility

Eichner

Runkel²

2014

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Subsidizing Renewable Energy under Capital MobilityAbstract This paper provides a rationale for subsidizing green (renewable) energy production. Within a multi-country model where energy is produced with mobile capital in green and dirty production, we investigate the countries' decentralized choice of emissions taxes and green energy subsidies. Without green subsidies, the emissions tax is set inefficiently low, since each country ignores the environmental externality inflicted on other countries and since the emissions tax leads to a capital outflow to other countries. When the green subsidy is available, countries choose a positive subsidy rate since this reduces the overall distortion of the tax-subsidy system. In doing so, each country internalizes a larger part of the environmental externality. As consequence capital is relocated from the dirty into the clean sectors and reduces global pollution. Hence, the subsidy is not only beneficial for the country which imposes it but for all countries.JEL-Code: H71, Q42, Q58.

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Section: Introductionsupporting

confidence: 70%

Subsidizing renewable energy under capital mobility

Eichner

Runkel²

2014

Journal of Public Economics

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“…A more general model would allow firms to migrate freely between zones depending on observed permit prices and on migration costs. Under certainty, such migration has been modeled in [8], who show that the possibility of migration has a considerable impact on an optimal policy. However, accounting for migration in our limited-information setup would result in a multidimensional stochastic game, the analysis of which is beyond the scope of this paper.…”

Section: The Modelmentioning

confidence: 99%

The optimal size of a permit market

Krysiak

Schweitzer

2010

Journal of Environmental Economics and Management

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“…Additionally, unilateral carbon pricing can induce relocation of energy-intensive industries (e.g. Markusen et al 1993). A uniform global carbon tax or a global ETS solves the relocation problem, but might be Utopian in the short term as there is no practical experience how to negotiate and distribute rent incomes and cost burdens.…”

Section: Introductionmentioning

confidence: 99%

Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?

Kalkuhl

Edenhofer

Lessmann

2013

Resource and Energy Economics

168

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SummaryThis paper evaluates the consequences of renewable energy policies on welfare, resource rents and energy costs in a world where carbon pricing is imperfect and the regulator seeks to limit emissions to a (cumulative) target. We use a global general equilibrium model with an intertemporal fossil resource sector. We calculate the optimal second-best renewable energy subsidy and compare the resulting welfare level with an efficient first-best carbon pricing policy. If carbon pricing is permanently missing, mitigation costs increase by a multiple (compared to the optimal carbon pricing policy) for a wide range of parameters describing extraction costs, renewable energy costs, substitution possibilities and normative attitudes. Furthermore, we show that small deviations from the second-best subsidy can lead to strong increases in emissions and consumption losses. This confirms the rising concerns about the occurrence of unintended side effects of climate policy { a new version of the green paradox. We extend our second-best analysis by considering two further types of policy instruments: (1) temporary subsidies that are displaced by carbon pricing in the long run and (2) revenue-neutral instruments like a carbon trust and a feed-in-tariff scheme. Although these instruments cause small welfare losses, they have the potential to ease distributional conflicts as they lead to lower energy prices and higher fossil resource rents than the optimal carbon pricing policy. Abstract This paper evaluates the consequences of renewable energy policies on welfare, resource rents and energy costs in a world where carbon pricing is imperfect and the regulator seeks to limit emissions to a (cumulative) target. We use a global general equilibrium model with an intertemporal fossil resource sector. We calculate the optimal second-best renewable energy subsidy and compare the resulting welfare level with an efficient first-best carbon pricing policy. If carbon pricing is permanently missing, mitigation costs increase by a multiple (compared to the optimal carbon pricing policy) for a wide range of parameters describing extraction costs, renewable energy costs, substitution possibilities and normative attitudes. Furthermore, we show that small deviations from the second-best subsidy can lead to strong increases in emissions and consumption losses. This confirms the rising concerns about the occurrence of unintended side effects of climate policy -a new version of the green paradox. We extend our second-best analysis by considering two further types of policy instruments: (1) temporary subsidies that are displaced by carbon pricing in the long run and (2) revenue-neutral instruments like a carbon trust and a feed-in-tariff scheme. Although these instruments cause small welfare losses, they have the potential to ease distributional conflicts as they lead to lower energy prices and higher fossil resource rents than the optimal carbon pricing policy. Keywords

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Environmental Policy When Market Structure and Plant Locations are Endogenous

Cited by 102 publications

References 26 publications

Subsidizing renewable energy under capital mobility

Subsidizing renewable energy under capital mobility

The optimal size of a permit market

Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?

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