Santiago J. Rubio from the University of Valencia and GEAR Group member Ángela García-Alaminos have recently published a new research article entitled “Emission taxes and feed-in subsidies in the regulation of a polluting monopoly” in SERIEs – Journal of the Spanish Economic Association.

The paper studies and compares the use of emission taxes and feed-in subsidies for the regulation of a monopoly that can produce the same good with a technology that employs a polluting input and a clean technology. First, it is showed that the efficient solution could be implemented combining a tax on emissions and a subsidy on clean output. The second-best tax and subsidy are also calculated through a two-stage policy game between the regulator and the monopoly, concluding that the second-best tax rate can be the Pigouvian tax, but only if the marginal costs of the clean technology are constant. A linear-quadratic specification of the model is also developed, allowing for a comparison of both policy instruments.

This work was awarded the “Young Researcher in Energy Economics Prize» by Red Eléctrica de España and the Spanish Association for Energy Economics in January 2020.

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