Abstract:

This paper discusses environmental taxation based on the theoretical framework of Chinese–style vertical structure. We focus on the case of upstream traditional energy firms and renewable energy firms having dual objectives. Firstly, we find that the composition of the objectives of energy firms is crucial for the effectiveness of environmental taxation. The key condition is that traditional energy firms prioritize economic objectives above a certain threshold, and other parameters affect the effects of environmental taxation by changing this threshold. Then, we analyze the structure of the optimal environmental tax rate and the impact of renewable energy on the optimal tax rate. Finally, we conduct a scenario analysis based on the real economic data in China and find that selling the optimal environmental tax rate in the baseline scenario can improve social welfare and simultaneously reduce pollution and improve the energy structure.

Key words: Chinese–style vertical structure, environmental taxation, energy structure