Efficient CO 2 emissions control with emissions taxes and international emissions trading

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.euroecorev.2009.02.002 Byline: Thomas Eichner (a), Rudiger Pethig (b) Abstract: We consider a stylized model of the hybrid CO.sub.2 emissions control in the EU. A group of countries operates a joint emissions trading system (ETS) covering only part of each country's economy. The countries levy an emissions tax in the rest of their economy and, possibly, an additional tax in their ETS sectors. Welfare-maximizing governments are shown to lack incentives for group-efficient policies. Preexisting taxes overlapping with the ETS lead policy makers to allocate more permits to their ETS sectors than cost effectiveness would suggest. The cases of 'small' and 'large' countries exhibit significantly different efficiency implications. Author Affiliation: (a) Department of Economics, University of Bielefeld, Universitatsstr. 25, 33615 Bielefeld, Germany (b) Department of Economics, University of Siegen, Holderlinstr. 3, 57068 Siegen, Germany Article History: Received 9 February 2007; Accepted 20 February 2009 Article Note: (footnote) [star] Helpful comments from Thorvaldur Gylfason, an associate editor and three anonymous referees are gratefully acknowledged. Remaining errors are the authors' sole responsibility.