Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives

In this research, we evaluate the incentive effects of five environmental policy instruments to promote the development and adoption of advanced pollution abatement technology in a heterogenous industry. From most to least incentive, the policy instruments can be rank-ordered as follows: (i) auctioned permits; (ii) emissions taxes and subsidies; (iii) issued marketable permits; (iv) performance standards. Including performance standards in this list necessitates the assumption that they are differentiated between heterogeneous firms before the technology adoption in a way which replicates the initial emissions control distribution of the efficient incentive-based instruments. With the starting point normalized in this fashion, the instrument rankings are invariant with respect to the size of firms, the size of the industry, or the industry's abatement cost structure.