Pollution Under Hybrid Environmental Regulation: The Case of Space Heating
Economic literature on environmental policy under imperfect competition provides controversial results. Some contributions find that under specific conditions environmental policy can increase emissions. Others find that environmental policy never increases emissions. However, these contributions are based on symmetric environmental regulation. The same environmental tool is applied to all firms and/or consumers belonging to a specific industrial or service sector. This chapter aims at studying how these results are affected by hybrid regulation when different environmental tools are applied to technologies coexisting in the same sector. This situation is well-suited to describe the structural and technological features of space heating in residential sectors. Looking at polarized market configurations (a dominant firm facing a fringe of producers), the analysis shows that increasing pollution is widely admissible in principle and does not require large environmental asymmetry of firms. However when the real conditions of markets and technologies are accounted for (by means of specific numerical simulations), the probability of increasing pollution seems to be very low in most situations where it is theoretically admissible. The results about the impact of hybrid regulation are ambiguous. Compared to symmetric regulation, hybrid regulation plays a significant role in affecting the probability of increasing pollution. However, this role cannot be generalized.
KeywordsEmission Rate Market Power District Heating Space Heating Emission Allowance
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