Get access

ENVIRONMENTAL MANAGEMENT POLICY UNDER INTERNATIONAL CARBON LEAKAGE

Authors

  • KAZUHARU KIYONO,

    1. Waseda University, Japan
    2. Hitotsubashi University, Japan
    Search for more papers by this author
  • JOTA ISHIKAWA

    1. Waseda University, Japan
    2. Hitotsubashi University, Japan
    Search for more papers by this author
    • We wish to thank three anonymous referees, Shunsuke Managi, Shiro Takeda, and participants of APTS and Australasian Trade Workshop and of seminars at Keio University, Kobe University, the Norwegian School of Economics and Business Administration, Stockholm University, and Tohoku University for their helpful comments on earlier versions of this article. The usual disclaimer applies. We are grateful to Ralph Paprzycki for editing this paper. Ishikawa acknowledges financial support from the Ministry of Education, Culture, Sports, Science and Technology of Japan (MEXT) through a Global Center of Excellence Project and a Grant-in-Aid for Scientific Research (A). Ishikawa dedicates this article to the late Professor Kazuharu Kiyono, who passed away before this article was completed. Please address correspondence to: Jota Ishikawa, Faculty of Economics, Hitotsubashi University, Kunitachi, Tokyo 186-8601, Japan. Fax: +81-42-580-8882. E-mail: jota@econ.hit-u.ac.jp.


Abstract

This article studies environmental management policy when two fossil-fuel-consuming countries noncooperatively regulate greenhouse-gas emissions through emission taxes or quotas. The presence of carbon leakage caused by fuel-price changes affects the tax-quota equivalence. We explore each country's incentive to choose a policy instrument in a two-stage policy choice game and find subgame-perfect Nash equilibria. This sheds new light on the questions of which policy instrument is more stringent and of why adopted instruments could be different among countries. In particular, our result suggests a reason why developing countries tend to employ emission taxes whereas developed countries tend to adopt quotas.

Ancillary