Environmental Policy in Vertical Chains with Endogenous Technology Portfolio

Basak, Debasmita; Chioveanu, Ioana

Abstract

We analyse the impact of environmental policy in a supply chain where an upstream monopo-list 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. (in press). Environmental Policy in Vertical Chains with Endogenous Technology Portfolio. Energy Economics,

• Journal Article Type: Article
• Acceptance Date: May 17, 2025
• Deposit Date: May 23, 2025
• Print ISSN: 0140-9883
• Electronic ISSN: 1873-6181
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• 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/journal/energy-economics