Domestic Pigouvian Taxation and Technological Spillovers under International Emissions Trading

Spisto Amanda
CEIS Research Paper
I model an economy featuring two representative firms in two countries, one in each country, where one firm innovates and generates technological unilateral spillovers. I analyze a partial equilibrium model in two different scenarios: in the first one, the innovating firm is under a domestic emissions taxation, while the other country does not implement any environmental policy. Government of the innovating firm introduces a tax credit aimed at incentivizing investment in cleaner abatement technologies. Finally, in the second scenario, the two countries take part to an international ETS. Comparisons among results from di¤erent scenarios are shown in the analytical part of the study. I conclude that, under specific assumpitons, overlapping regulations might be welfare improving.
Number: 234
Keywords: Pigouvian Taxation, International ETS, policy mix, trans- boundary pollution, international technological spillover.
JEL codes: Q58, H23
Date: Tuesday, May 8, 2012
Revision Date: Tuesday, May 8, 2012