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Intensity-Based Rebating of Emission Pricing Revenues

Author

Listed:
  • Christoph Böhringer
  • Carolyn Fischer
  • Nicholas Rivers

Abstract

Carbon-pricing policies worldwide are increasingly coupled with direct or indirect subsidies where emissions pricing revenues are rebated to the regulated entities. This study analyzes the incentives created by two novel forms of rebating that reward additional emission intensity reductions: one given in proportion to output (intensity-based output rebating) and another that rebates a share of emission payments (intensity-based emission rebating). These forms are contrasted with output-based rebating, abatement-based rebating, and lump-sum rebating. Given the same emission price, intensity-based output rebating incentivizes the most intensity reductions, while abatement-based rebating causes the most output reductions, and output-based rebating puts the least pressure on output (and emissions); intensity-based emissions rebating lies in between these, by implicitly subsidizing emissions while incentivizing intensity reductions. The study supplements partial equilibrium theoretical analysis with numerical simulations to assess the performance of different mechanisms in a multisector general equilibrium model that accounts for economy-wide market interactions.

Suggested Citation

  • Christoph Böhringer & Carolyn Fischer & Nicholas Rivers, 2023. "Intensity-Based Rebating of Emission Pricing Revenues," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 1059-1089.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/723645
    DOI: 10.1086/723645
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    Cited by:

    1. Nikos Tsakiris & Nikolaos Vlassis, 2024. "Border Carbon Adjustments and Leakage in the Presence of Public Pollution Abatement Activities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2231-2258, September.
    2. Ferguson, Shon & Heijmans, Roweno J.R.K., 2023. "Climate Policy and Trade in Polluting Technologies," Working Paper Series 1470, Research Institute of Industrial Economics.
    3. Basaglia, Piero & Isaksen, Elisabeth & Sato, Misato, 2025. "Carbon pricing, compensation, and competitiveness: lessons from UK manufacturing," LSE Research Online Documents on Economics 128813, London School of Economics and Political Science, LSE Library.
    4. Hiroaki Ino & Toshihiro Matsumura, 2023. "The optimal fuel and emission tax combination for life-cycle emissions under imperfect competition," Discussion Paper Series 243, School of Economics, Kwansei Gakuin University, revised Apr 2023.
    5. Aldy, Joseph E. & Burtraw, Dallas & Fischer, Carolyn & Fowlie, Meredith & Williams, Roberton C. & Cropper, Maureen L., 2022. "How is the U.S. Pricing Carbon? How Could We Price Carbon?," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 13(3), pages 310-334, October.
    6. Long, Xianling & Astier, Nicolas & Zhang, Da, 2025. "Is broader trading welfare improving for emission trading systems?," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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