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Technology adoption decisions under a mixed regulatory system of tradable permits and air pollution fees for the control of Total Suspended Particulates in Taiwan

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Abstract

By using a newly proposed tradable permit system built under the current air pollution fee regulation for the control of Total Suspended Particulates in Taiwan as an example, a mixed-integer non-linear programming model that minimizes the total regulatory costs of firms is applied to investigate how different permit trading ratios and the design of banking might affect firms’ technology adoption decisions and permit trading behavior. By incorporating binary variables in the model to represent firms’ decisions as to whether or not to install new control equipment, the results show that when the unit air pollution fee rate is higher than the firms’ abatement costs, the design of banking causes many firms to install new control equipment that results in an over-reduction of emissions. If no air pollution fee is imposed, the trading ratio plays a more important role than the reservation rate for banking in determining the firms’ emission reduction strategies under a pure permit trading scheme. While the conclusion from this study that uses a non-uniformly mixed pollutant as an example may hold only when certain conditions are met, the framework can be applied to other uniformly mixed pollutants through parameter changes without any limitation. In addition, the modeling technique presented here offers policy-makers a very convenient approach to empirical analysis.

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Authors and Affiliations

  1. Department of Economics, National Cheng-Kung University, Tainan, Taiwan

    Chao-Ning Liao

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  1. Chao-Ning Liao
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Correspondence to Chao-Ning Liao.

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Liao, CN. Technology adoption decisions under a mixed regulatory system of tradable permits and air pollution fees for the control of Total Suspended Particulates in Taiwan. J Regul Econ 35, 135–153 (2009). https://doi.org/10.1007/s11149-008-9073-0

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  • DOI: https://doi.org/10.1007/s11149-008-9073-0

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