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Tax versus Regulations: Robustness to Polluter Lobbying Against Near-Zero Emission Targets

Hirose, Kosuke and Ishihara, Akifumi and Matsumura, Toshihiro (2021): Tax versus Regulations: Robustness to Polluter Lobbying Against Near-Zero Emission Targets.

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Abstract

We investigate polluter lobbying against near-zero emission targets in a monopoly market. To this end, we compare three typical environmental policies---an emission cap regulation that restricts total emissions, an emission intensity regulation that restricts emissions per output unit, and an emission tax. We presume a policy to be most robust to lobbying when a lesser strict emission target (i.e., an increase in the targeted emission level) imposed by the government to the industry increases the firms' profit least significantly among the three policies. We find that the emission tax is the most robust in the presence of lobbying if the government aims for a net-zero emission society. However, the emission tax is the least robust if the emission target is loose or the government is weak against lobbying.

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