Environmental Policy and Firm Investment Behaviour when Energy Saving Technologies are Available
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Abstract
This paper investigates upon the effects of taxation on firm investment behaviour in presence of alternative energy (oil) saving technologies and scarce resources in competitive markets. Socially optimal policies are compared to a decentralized regulatory framework: the paper shows that taxation affects the adoption of different energy saving technologies hence the aggregate amount of energy saving. To our knowledge, there are few works that underline the relationship between environmental policies and firms’ incentives to adopt oil saving technologies. For this reason, we follow the theoretical literature focusing on the effects of environmental policy applied to pollution and climate change by adapting it to the energy saving perspective. We perform a static comparison of environmental policies to show that different levels of the same instrument lead to different results in terms of the number of firms adopting energy saving technologies; multiple equilibrium are possible but there is only one which is socially optimal.
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