Pollution Permits, Imperfect Competition and Abatement Technologies
48 Pages Posted: 27 Nov 2013 Last revised: 6 Oct 2014
Date Written: November 26, 2013
Under imperfect competition, the effect of a cap-and-trade system on industry profits depends on the type of abatement technology that is used by firms: industries that use process-integrated technologies are more affected than those using end-of-pipe abatement technologies. The interaction between environmental policy and the evolution of the market structure is then studied. In particular, a reserve of pollution permits for new entrants is justified when the industry uses a process-integrated abatement technology, while a system with a preemption right may be justified in the case of end-of-pipe abatement technology.
Keywords: Cap-and-trade system, imperfect competition, abatement technologies
JEL Classification: L13, Q53, Q58
Suggested Citation: Suggested Citation