Environmental policy in vertical chains with endogenous technology portfolio

Basak, Debasmita; Chioveanu, Ioana

Abstract

We analyze the impact of environmental policy in a supply chain where an upstream monopolist uses a mixed portfolio, consisting of a polluting and a green technology. We examine and compare a no-intervention benchmark, a green subsidy, an abatement tax, a mandatory green standard, and a combined policy (mandatory standard and tax), where policy instruments maximize welfare. Compared to the benchmark, prices are higher (lower), total output is smaller (larger), green capacity is larger, polluting capacity, profits, and consumer surplus are smaller (larger), and social welfare is greater with a binding tax (with a subsidy). A subsidy leads to larger green capacity than a tax and, unless the damage is high enough, to lower polluting capacity and greater welfare. A mandatory standard is outcome equivalent to a subsidy, except for the upstream manufacturer, who strictly prefers the latter. For small enough damage, a combined policy benefits not only society, but also consumers and retailers relative to the benchmark.

Citation

Basak, D., & Chioveanu, I. (2025). Environmental policy in vertical chains with endogenous technology portfolio. Energy Economics, 148, Article 108607. https://doi.org/10.1016/j.eneco.2025.108607

• Journal Article Type: Article
• Acceptance Date: May 17, 2025
• Online Publication Date: Jun 28, 2025
• Publication Date: Aug 1, 2025
• Deposit Date: May 23, 2025
• Publicly Available Date: Dec 29, 2026
• Journal: Energy Economics
• Print ISSN: 0140-9883
• Electronic ISSN: 1873-6181
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 148
• Article Number: 108607
• DOI: https://doi.org/10.1016/j.eneco.2025.108607
• Keywords: Supply Chains; Green Technology Subsidy; Pollution Tax; Mandatory Standard
• Public URL: https://nottingham-repository.worktribe.com/output/49282827
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0140988325004347
• Additional Information: This article is maintained by: Elsevier; Article Title: Environmental policy in vertical chains with endogenous technology portfolio; Journal Title: Energy Economics; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.eneco.2025.108607; Content Type: article; Copyright: © 2025 The Authors. Published by Elsevier B.V.