Jump to Main Content
Emissions Taxes and Abatement Regulation Under Uncertainty
- Christiansen, Vidar, Smith, Stephen
- Environmental and resource economics 2015 v.60 no.1 pp. 17-35
- emissions, issues and policy, taxes, uncertainty
- We consider environmental regulation in a context where firms invest in abatement technology under conditions of uncertainty about subsequent abatement cost, but can subsequently adjust output in the light of true marginal abatement cost. Where an emissions tax is the only available instrument, policy faces a trade-off between the incentive to invest in abatement technology and efficiency in subsequent output decisions. More efficient outcomes can be achieved by supplementing the emissions tax with direct regulation of abatement technology, or by combining the tax with an abatement technology investment subsidy. We compare the properties of these alternative instrument combinations.