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The Triple Inefficiency of Uncoordinated Environmental Policies

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  • Michael Hoel
Abstract
When pollution is transboundary and there is international trade, a domestic inefficiency may arise in addition to the well‐known inefficiencies at the international level. More precisely, there will be a Nash equilibrium in which each country chooses a policy that gives it lower welfare than would otherwise be possible given the emission levels of all countries. However, there will also be a Nash equilibrium in which each country chooses tradable emission quotas as its policy instrument to achieve its desired level of emissions. In this Nash equilibrium, welfare in each country is maximised given the emission levels of all countries.

Suggested Citation

  • Michael Hoel, 2005. "The Triple Inefficiency of Uncoordinated Environmental Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 157-173, March.
    • Handle: RePEc:bla:scandj:v:107:y:2005:i:1:p:157-173
    DOI: 10.1111/j.1467-9442.2005.00400.x
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    References listed on IDEAS

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    1. Henry D. Jacoby & Richard S. Eckaus & A. Denny Ellerman & Ronald G. Prinn & David M. Reiner & Zili Yang, 1997. "CO2 Emissions Limits: Economic Adjustments and the Distribution of Burdens," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 31-58.
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    4. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, vol. 27(3), pages 259-274, November.
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    6. Golombek, Rolf & Hagem, Cathrine & Hoel, Michael, 1995. "Efficient incomplete international climate agreements," Resource and Energy Economics, Elsevier, vol. 17(1), pages 25-46, May.
    7. Rolf Golombek & Jan Braten, 1994. "Incomplete International Climate Agreements: Optimal Carbon Taxes, Market Failures and Welfare Effects," The Energy Journal, , vol. 15(4), pages 141-165, October.
    8. Henk Folmer & H. Landis Gabel & Shelby Gerking & Adam Rose (ed.), 2001. "Frontiers of Environmental Economics," Books, Edward Elgar Publishing, number 1929.
    9. Rauscher, Michael, 1997. "International Trade, Factor Movements, and the Environment," OUP Catalogue, Oxford University Press, number 9780198290506.
    10. Michael Hoel, 2001. "International trade and the environment: how to handle carbon leakage," Chapters, in: Henk Folmer & H. Landis Gabel & Shelby Gerking & Adam Rose (ed.), Frontiers of Environmental Economics, chapter 7, Edward Elgar Publishing.
    11. Jeroen C.J.M. van den Bergh (ed.), 1999. "Handbook of Environmental and Resource Economics," Books, Edward Elgar Publishing, number 801.
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    Cited by:

    1. Kazuharu Kiyono & Jota Ishikawa, 2013. "Environmental Management Policy Under International Carbon Leakage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 1057-1083, August.
    2. Pierre-André Jouvet & Fabien Prieur, 2006. "Permis de pollution et contraintes politiques dans un modèle à générations imbriquées," EconomiX Working Papers 2006-21, University of Paris Nanterre, EconomiX.
    3. Ritter, Hendrik & Zimmermann, Karl, 2019. "Cap-and-Trade Policy vs. Carbon Taxation: Of Leakage and Linkage," EconStor Preprints 197796, ZBW - Leibniz Information Centre for Economics.
    4. Haitao CHENG & ISHIKAWA Jota, 2021. "Carbon Tax and Border Tax Adjustments with Technology and Location Choices," Discussion papers 21030, Research Institute of Economy, Trade and Industry (RIETI).
    5. Peter H. Egger & Christoph Jessberger & Mario Larch, 2013. "Impacts of Trade and the Environment on Clustered Multilateral Environmental Agreements," The World Economy, Wiley Blackwell, vol. 36(3), pages 331-348, March.
    6. Michel Cavagnac & Isabelle Péchoux, 2010. "Domestic Effects of Environmental Policies with Transboundary Pollution," Recherches économiques de Louvain, De Boeck Université, vol. 76(1), pages 113-134.
    7. Roland Ismer & Karsten Neuhoff, 2007. "Border tax adjustment: a feasible way to support stringent emission trading," European Journal of Law and Economics, Springer, vol. 24(2), pages 137-164, October.
    8. Liu, Liyuan & Peng, Fei, 2015. "Environmental Protection and Economic Growth: An Optimal Pollution Controlling Model," MPRA Paper 76261, University Library of Munich, Germany.
    9. Sungwan Hong & Seung-Gyu Sim, 2018. "Inelastic Supply of Fossil Energy and Competing Environmental Regulatory Policies," Sustainability, MDPI, vol. 10(2), pages 1-17, January.
    10. Liyuan Liu & Jing Zhu & Yibin Zhang & Xiding Chen, 2020. "An Optimal Pollution Control Model for Environmental Protection Cooperation between Developing and Developed Countries," IJERPH, MDPI, vol. 17(11), pages 1-20, May.
    11. MacKenzie, Ian A., 2011. "Tradable permit allocations and sequential choice," Resource and Energy Economics, Elsevier, vol. 33(1), pages 268-278, January.
    12. Jared C. Carbone, 2021. "Prices vs. Quantities in International Pollution Regulation," Working Papers 2021-01, Colorado School of Mines, Division of Economics and Business.

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