The aim of our research project is to examine the role of consumers in abating polluting emissions. To this end, we first wonder whether a strong environmental concern among heterogeneous consumers can contribute to reduce environmental damage depending also on some characteristics of consumers, namely their income and culture, inter alia. In our approach, this concern stems from social norms stating that green consumption is a byword of good citizenship and as such is heterogeneously spread worldwide.
Then, we consider whether consumers' attitudes can be more effective than a fiscal tool in abating emissions. Accordingly, we describe a scenario where a carbon tax (i) is imposed on brown consumers (i.e. consumers buying brown goods) rather than on firms, and (ii) it increases with the pool of brown consumers and with the quality differential between a green and a brown product. In order to assess the role of consumers, we compare the equilibrium configuration resulting when the tax is imposed on consumers with the equilibrium that would be observed if a carbon tax on global emissions is levied on polluting producers.
Our analysis goes along two dimensions. On a theoretical ground, we try to identify the role of consumers in reducing pollution damage thereby disentangling the properties of different equilibrium configurations. Moreover, we try to test our result on an empirical ground.
Our analysis complements the literature on the effects of different environmental policies on the equilibrium configurations when consumers are willing to pay more for less polluting goods (see Moraga-Gonzalez and Padron-Fumero, 2002; Bansal and Gangopadhyay, 2003; Bansal, 2008; Galera et al. 2014, inter alia). To the best of our knowledge, we are the first in this literature to consider the effect of a fiscal measure on polluting emissions being targeted to consumers and endogenously determined by the optimal quality choice of firms.
Also, we are somehow related to the literature concerned with the Porter hypothesis. Contrary to the conventional wisdom according to which a stringent regulation can reduce profits, Porter (Porter, 1990, 1991) argues that environmental regulations can enhance green investment thereby generating in the long run gains that can counterbalance the costs faced to satisfy them (see on the Porter hypothesis Xepapadeas and de Zeeuw, (1999); Hart, (2004); Greaker, (2006); André et al., (2009); Lanoie et al., (2011); inter alia. See also Lambertini (2013) for an in-depth review of the Porter hypothesis in the literature).
By means of our theoretical model, we can evaluate whether a fiscal plan induces firms to increase the quality of their products with positive effects on the equilibrium profits. Further, we will discuss how these effects change, depending on the nature of the fiscal measure (subsidy versus tax) and the agent to which the policy is targeted (consumers versus firms).
We can also contribute to the debate on the incentive to relocate manufacturing activities under unilateral climate policy. In a large strand of theoretical research, several arguments are found both in favour and against the possible shift of domestic activities abroad due to unilateral carbon taxes and the empirical literature provides mixed evidence (Petrakis and Xepapadeas, 2003; Ulph and Valentini, 2001; Abe and Zhao, 2005; Ikefuji et al., 2016; Sanna Randaccio et al., 2016). We will assess whether and how the incentive to relocate by firms changes with the recipients of the carbon tax -- consumers versus producers -- and try to emphasize the reason for this finding within a novel approach of vertical differentiation.
Lastly, the availability of data at the NUTS-3 level on good proxies of the environmental culture (garbage disposal and the purchase of eco-friendly vehicles) and of the firms behaviour towards the environment (the number of ISO 14001 and EMAS certificates per 1,000 plants and the percentage of green jobs expected to be hired in the next year) allows us to empirically test the predictions of the theoretical model.