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

• 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.

Ämnesord

SAMHÄLLSVETENSKAP  -- Statsvetenskap (hsv//swe)

SOCIAL SCIENCES  -- Political Science (hsv//eng)

Nyckelord

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

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