Is Emission Intensity or Output U-Shaped in the Strictness of Environmental Policy?

44 Pages Posted: 3 Jul 2014

See all articles by Bouwe Dijkstra

Bouwe Dijkstra

University of Nottingham - School of Economics

Maria Jose Gil-Molto

University of Leicester - Department of Economics

Date Written: June 11, 2014

Abstract

In a model where firms face a continuous choice of how much to invest in environmental innovation, we show that an ever stricter environmental policy does not always lead to ever cleaner production methods and ever lower production of polluting goods. It does so when the abatement technology is end-of-pipe. When the abatement technology is integrated however, either emission intensity or output is U-shaped in the strictness of policy. If the emission intensity is U-shaped, it will reach its lowest value at the point where the Marginal Abatement Cost curves intersect. These results hold with emission taxation (whether firms are price-takers or they interact strategically on the output market) as well as in the social optimum.

Keywords: environmental innovation, environmental taxation, oligopoly, marginal abatement costs

JEL Classification: L130, Q550, Q580

Suggested Citation

Dijkstra, Bouwe and Gil-Molto, Maria Jose, Is Emission Intensity or Output U-Shaped in the Strictness of Environmental Policy? (June 11, 2014). CESifo Working Paper Series No. 4833. Available at SSRN: https://ssrn.com/abstract=2461670

Bouwe Dijkstra (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 8467205 (Phone)
+44 115 9514159 (Fax)

Maria Jose Gil-Molto

University of Leicester - Department of Economics ( email )

University Road
Leicester, LE1 7RH
United Kingdom

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