The Role of Emission and Pollution Vulnerability Asymmetries in Pollution Reduction Policies: Study of Tax and Environmental Standard Policies

Abstract

Finding economic and policy-making tools to protect the environment in the presence of increasing trade competition among countries has always been a regional and international concern in recent decades. In this study, we first introduce, review and investigate the relevant environmental policies in the existing environmental economic literature. Then, in the framework of a non-cooperative static game model, we focus on market-based policies and command and control regulations as pollution abatement policies, and examine which of the two emission tax and emission standard policies from the private, social and environmental points of view has a better performance in the presence of pollution production asymmetries or asymmetry of the vulnerability of countries to pollution. The results show that both competitive environmental taxation and the emission standards, in the stated asymmetric conditions, can reduce pollution emissions and increase social welfare. But a comparison of the two policies shows that the tax policy, which is an interventionist policy in the market, has less positive effects on welfare and the environment than the standard regulations. Even firms often prefer to operate under a standard pollution policy rather than a tax policy, unless their emissions are lower than those of their competitor.

Keywords

• environmental policy
• pollution tax
• command and control rgulations
• emission standards
• environmental asymmetry