International coordination of environmental policies: is it always worth the effort?

We study entry policies as an alternative form of environmental policy. Given the strong political opposition to standard output subsidies and taxes, several countries have recently used entry policies to promote renewable energy technology, such as solar panels and biofuels. We study a two-stage ga...

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Bibliographic Details
Published in:Environment and development economics 2019-06, Vol.24 (3), p.294-316
Main Authors: Bayham, Jude, Muñoz-García, Félix, Espínola-Arredondo, Ana
Format: Article
Language:English
Subjects:
Agreements
Biofuels
Competition
Coordination
Costs
Economic models
Energy industry
Energy policy
Energy technology
Environmental policy
Environmental regulations
Extreme values
Foreign policy
International agreements
International policy
Negotiation
Political opposition
Regulation
Renewable energy
Renewable energy technologies
Renewable resources
RESEARCH ARTICLE
Solar energy
Solar panels
Subsidies
Tariffs
Taxation
Taxes
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Summary:We study entry policies as an alternative form of environmental policy. Given the strong political opposition to standard output subsidies and taxes, several countries have recently used entry policies to promote renewable energy technology, such as solar panels and biofuels. We study a two-stage game in which two regulators choose an entry policy (i.e., tax, subsidy or permit) to maximize domestic welfare. Observing the policy, firms decide the region in which to enter and compete as Cournot oligopolists. We find that both domestic (uncoordinated) policies and internationally coordinated policies increase welfare relative to unregulated settings. However, the welfare gains from international policy coordination are only large when the product is extremely clean. These results indicate that the welfare gains of international policy coordination may only offset the costs of negotiation in relatively clean industries.
ISSN:1355-770X
1469-4395
DOI:10.1017/S1355770X19000019