Deregulation as an alternative policy measure of emission tax

In this paper, we consider two kinds of environmental policy measures, one is emission taxation system and the other is market deregulation through allowance of a public firm’s entrance in the market. The research motivation is based on the idea whether an alternative policy measure instead of environmental taxation system exists or not. The main results are as follows. First, in the oligopoly market by private firms under emission taxation system, the firm has an incentive to choose clean technology even it bears additional abatement cost when k is large, and the social welfare under clean technology is higher than that under normal technology regardless of k. Second, mixed oligopoly is socially more desirable than emission taxation system under oligopoly with normal technology. However, only if the market is less competitive, a policy measure to make mixed oligopoly could be socially more desirable than emission taxation system under oligopoly with clean technology where k is low. Finally, environmental damage under mixed oligopoly is higher than that under clean technology while it is lower than that under normal technology. From these results, we can conclude that the alternative measure we thought is valid from the view point of social welfare even though the conditions are restrictive. Of course, it is possible let the private firm to make an effort for abating pollutant emission voluntarily through emission tax, this possibility is restrictive. We showed that this is possible only when k is high. When k is low, there are any incentives for the private firm to take a clean technology under emission taxation system. If it is true, changing the market from oligopoly to mixed oligopoly could be more effective policy measure.