Strategic Behavior and the Environment > Vol 6 > Issue 3

On Refunding of Emission Taxes and Technology Diffusion

Jessica Coria, University of Gothenburg, Sweden, Kristina Mohlin, Environmental Defense Fund, USA,
Suggested Citation
Jessica Coria and Kristina Mohlin (2017), "On Refunding of Emission Taxes and Technology Diffusion", Strategic Behavior and the Environment: Vol. 6: No. 3, pp 205-248.

Published: 30 Mar 2017
© 2017 J. Coria and K. Mohlin
Public policy,  Regulation,  Climate Change
JEL Codes: H23O33O38Q52
Emission taxRefundAbatement technologyTechnology diffusionImperfect competition

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In this article:
The Model
Adoption Incentives Under an Emission Tax
Adoption Incentives Under a Refunded Tax
Incentives for Continuous Technological Upgrading
Appendix A. Demonstration of Nash Equilibrium
Appendix B. Comparison of Endogenous and Exogenous Refunding
Appendix C. Comparison of an Endogenous Refunded Tax and a Non-refunded Emission Tax
Appendix D. Incentives for Continuous Technological Upgrading Intermediates
Appendix E. Numerical Illustrations


We analyze the impacts on technology diffusion of an emission tax refunded in proportion to output market share — a policy modeled after existing systems in Sweden and France — and compare to the diffusion of an abatement technology under a standard emission tax. The results indicate that refunding can speed up diffusion if firms do not strategically influence the size of the refund. If they do, it is ambiguous whether diffusion is slower or faster than under a nonrefunded emission tax. Moreover, it is ambiguous whether refunding continues over time to provide larger incentives for technological upgrades than a nonrefunded emission tax, since the effects of refunding dissipate as the industry becomes cleaner. The overall conclusion is that the effects of refunding on technology diffusion critically depends on the regulated industry’s prior technological composition and its market structure.