Research On Environmental Policy Effect On Firms' Incentives Of Pollution Abatement Technology Innovation

With the aggravation of pollution and increasing environmental awareness all around the world, it has aroused more and more concerns from academic circles and policymaker that how to use environmental policy instruments to provides firms with incentives to invest in environmental R&D. Numerous studies have shown that different environmental policies can provide incentives with different level, and market structure can also affect "environmental R&D ranking". The limitations of previews literatures are that they only examine single market structure, either perfect competitive market or oligopoly market, and the environmental policies they research are lack of representativeness. In order to overcome these limitations, this paper studies firms' incentives to invest in environmental R&D under different market structures (perfect competitive market and duopoly market) and environmental policy instruments (emission standards, taxes, tradable permits and auctioned permits). The main contents of this paper are as follows:(1) This paper studies the research results of current literatures on how environmental policy instruments affect firms' incentives to invest in environmental R&D, and summarizes their characteristics and insufficiencies.(2) Based on current research results, this research builds models which quantify the incentives, then compares and analyze them.(3) Under perfect competitive market, if the firm is buyer of permits, from most to least incentive, the policy instruments can be rank-ordered as follows: auctioned permits, tradable permits, taxes and emission standards. If the firm is seller of permits and the permits price is low enough, the policy instruments can be rank-ordered as follows: auctioned permits, taxes, emission standards and tradable permits.(4) Under duopoly market, when firms complete Cournot in output market, taxes can provide more, less, or the same R&D incentives than emission standards. Tradable permits offer less R&D incentives then either emission standards or taxes, but it can offer more incentives than auctioned permits.(5) I developed a numerical exercise on tradable permits and auctioned permits under duopoly market to illustrate and complement the analytical results of previews findings.(6) In the end, I summarize the room for improvement in my work and some fields which are worth of further study.