Multiple pollutants, co-benefits, and suboptimal environmental policies

Don Fullerton, Daniel H. Karney

Research output: Contribution to journalArticlepeer-review


In our analytical general equilibrium model, polluting inputs can be substitutes or complements. We study a tax increase on one pollutant where the other faces a tax or permit policy. Our solutions highlight key parameters and welfare effects with gains from abatement plus positive or negative co-benefits from other pollutants in the covered and uncovered sectors. We demonstrate several ways taxes and permits differ. First, the change in taxed pollutant depends on whether the other pollutant faces a tax or permit policy. Also, only with a tax on the other pollutant can a co-benefit arise. The sign of co-benefits depends on the sign of cross-price elasticities and on whether the other pollutant's price is above or below marginal damages. Finally, the other pollutant's tax or permit policy also affects emissions in the uncovered sector (leakage). In a numerical illustration of carbon tax in U.S. electricity, we calculate emissions of CO2 and SO2 in both sectors.

Original languageEnglish (US)
Pages (from-to)52-71
Number of pages20
JournalJournal of Environmental Economics and Management
StatePublished - Jan 2018


  • Carbon tax
  • Climate policy
  • Co-benefits
  • General equilibrium
  • Greenhouse gas emissions
  • Leakage
  • Pollution permits
  • Second best
  • Sulfur dioxide
  • Welfare effects

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law


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