• Environmental and Resource Economics Review
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• v.27 no.4
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• pp.725-743
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• 2018

Industrial groups (representing the polluters) and environmental non-governmental organizations (representing the victims) respond differently to various environmental policy instruments. As the affected group's power is large either politically or economically, it is unlikely that a single instrument will be actually selected despite being effective or efficient because of the high political costs associated with it. In this paper, we focus on the political role that energy subsidies play in creating a compromise between energy consuming polluters and victims of pollution. The use of a Dolbear (1967)'s triangle Edgeworth box model makes it possible to examine how policy selection affects the income distribution and welfare levels of two groups. The effects of a single policy instrument of either direct regulation or tax are compared with those of a policy mix that includes energy subsidies. We found that the addition of energy subsidies would increase the chance of compromise between polluters and victims.