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

Journal article
Authors Carolyn Fischer
M. Greaker
K. E. Rosendahl
Published in Journal of Environmental Economics and Management
Volume 84
Pages 44-61
ISSN 00950696 (ISSN)
Publication year 2017
Published at Department of Economics, Environmental Economics Unit
Pages 44-61
Language English
Links dx.doi.org/10.1016/j.jeem.2017.02.0...
Keywords Abatement subsidies, Asymmetric carbon taxes, Emission leakage, Strategic environmental policy, Carbon, Commerce, Competition, Pollution, Abatement technologies, Advanced technology, Asymmetric carbons, Asymmetric regulation, Emissions regulations, Global pollutants, Pollution abatement, Environmental protection
Subject categories Political Science

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. © 2017 Elsevier Inc.

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