IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v44y2009i1p107-136.html
   My bibliography  Save this article

Permit Trading and Credit Trading: A Comparison of Cap-Based and Rate-Based Emissions Trading Under Perfect and Imperfect Competition

Author

Listed:
  • Jan-Tjeerd Boom
  • Bouwe Dijkstra

Abstract

This paper compares emissions trading based on a cap on total emissions (permit trading) and on relative standards per unit of output (credit trading). Two types of market structure are considered: perfect competition and Cournot oligopoly. The e?ect of combining the two schemes is also discussed. We ?nd that output and abatement costs are higher under credit trading. Combining the two schemes may give an increase in welfare. With perfect competition, permit trading always leads to higher welfare than credit trading. With imperfect competition, credit trading may out perform permit trading. Environmental policy can lead to both entry and exit of ?rms. Entry and exit have a profound impact on the performance of the schemes, especially under imperfect competition. We ?nd that it may be impossible to implement certain levels of total industry emissions. Under credit trading several levels of the relative standard can achieve the same total level of emissions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jan-Tjeerd Boom & Bouwe Dijkstra, 2009. "Permit Trading and Credit Trading: A Comparison of Cap-Based and Rate-Based Emissions Trading Under Perfect and Imperfect Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 107-136, September.
    • Handle: RePEc:kap:enreec:v:44:y:2009:i:1:p:107-136
    DOI: 10.1007/s10640-009-9266-8
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10640-009-9266-8
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10640-009-9266-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Donald N. Dewees, 2001. "Emissions Trading: ERCs or Allowances?," Land Economics, University of Wisconsin Press, vol. 77(4), pages 513-526.
    2. C�dric Philibert & Jonathan Pershing, 2001. "Considering the options: climate targets for all countries," Climate Policy, Taylor & Francis Journals, vol. 1(2), pages 211-227, June.
    3. Frank Jotzo & John Pezzey, 2007. "Optimal intensity targets for greenhouse gas emissions trading under uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(2), pages 259-284, October.
    4. Bouwe R. Dijkstra, 1999. "The Political Economy of Environmental Policy," Books, Edward Elgar Publishing, number 1636.
    5. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
    6. Quirion, Philippe, 2005. "Does uncertainty justify intensity emission caps?," Resource and Energy Economics, Elsevier, vol. 27(4), pages 343-353, November.
    7. Jan-Tjeerd Boom & Bouwe Dijkstra, 2009. "Permit Trading and Credit Trading: A Comparison of Cap-Based and Rate-Based Emissions Trading Under Perfect and Imperfect Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 107-136, September.
    8. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers 10709, Resources for the Future.
    9. Michael Faure & Joyeeta Gupta & Andries Nentjes (ed.), 2003. "Climate Change and the Kyoto Protocol," Books, Edward Elgar Publishing, number 2968.
    10. Fischer, Carolyn, 2003. "Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition," RFF Working Paper Series dp-02-60, Resources for the Future.
    11. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
    12. Udo Ebert, 1998. "Relative standards: A positive and normative analysis," Journal of Economics, Springer, vol. 67(1), pages 17-38, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alfred Endres & Tim Friehe, 2013. "The monopolistic polluter under environmental liability law: incentives for abatement and R&D," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 40(3), pages 753-770, March.
    2. Kato, Shinya & Takeuchi, Kenji, 2017. "A CGE analysis of a rate-based policy for climate change mitigation," Journal of the Japanese and International Economies, Elsevier, vol. 43(C), pages 88-95.
    3. Woerdman Edwin & Nentjes Andries, 2019. "Emissions Trading Hybrids: The Case of the EU ETS," Review of Law & Economics, De Gruyter, vol. 15(1), pages 1-32, March.
    4. de, Vries Frans & Dijkstra, Bouwe R & McGinty, Matthew, 2011. "Emissions Trading and Intersectoral Dynamics: Absolute versus Relative Design Schemes," Stirling Economics Discussion Papers 2011-15, University of Stirling, Division of Economics.
    5. Bouwe R. Dijkstra & Maria J. Gil‐Moltó, 2018. "Is emission intensity or output U‐shaped in the strictness of environmental policy?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(2), pages 177-201, April.
    6. Dijkstra, Bouwe R. & Rübbelke, Dirk T.G., 2013. "Group rewards and individual sanctions in environmental policy," Resource and Energy Economics, Elsevier, vol. 35(1), pages 38-59.
    7. Kim, Yong-Gun & Lim, Jong-Soo, 2014. "An emissions trading scheme design for power industries facing price regulation," Energy Policy, Elsevier, vol. 75(C), pages 84-90.
    8. Adriana Gama, 2020. "Standards and social welfare in Cournot oligopolies," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(3), pages 467-483, July.
    9. Jan-Tjeerd Boom & Bouwe Dijkstra, 2009. "Permit Trading and Credit Trading: A Comparison of Cap-Based and Rate-Based Emissions Trading Under Perfect and Imperfect Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 107-136, September.
    10. Sungwan Hong & Seung-Gyu Sim, 2018. "Inelastic Supply of Fossil Energy and Competing Environmental Regulatory Policies," Sustainability, MDPI, vol. 10(2), pages 1-17, January.
    11. Neil J. Buckley & Stuart Mestelman & R. Andrew Muller, 2014. "Production Capacity and Abatement Technology Strategies in Emissions Trading Markets," Department of Economics Working Papers 2014-16, McMaster University.
    12. Geng, Wenxin & Fan, Ying, 2022. "An imperfectly competitive permit market under a rate-based scheme," Energy Economics, Elsevier, vol. 105(C).
    13. Frans Vries & Bouwe Dijkstra & Matthew McGinty, 2014. "On Emissions Trading and Market Structure: Cap-and-Trade versus Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 665-682, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Woerdman Edwin & Nentjes Andries, 2019. "Emissions Trading Hybrids: The Case of the EU ETS," Review of Law & Economics, De Gruyter, vol. 15(1), pages 1-32, March.
    2. Frans Vries & Bouwe Dijkstra & Matthew McGinty, 2014. "On Emissions Trading and Market Structure: Cap-and-Trade versus Intensity Standards," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 665-682, August.
    3. Neil J. Buckley & Stuart Mestelman & R. Andrew Muller, 2014. "Production Capacity and Abatement Technology Strategies in Emissions Trading Markets," Department of Economics Working Papers 2014-16, McMaster University.
    4. Jinhua Zhao, 2022. "Aggregate emission intensity targets: Applications to the Paris Agreement," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1875-1897, October.
    5. Kato, Shinya & Takeuchi, Kenji, 2017. "A CGE analysis of a rate-based policy for climate change mitigation," Journal of the Japanese and International Economies, Elsevier, vol. 43(C), pages 88-95.
    6. Sterner, Thomas & Muller, Adrian, 2006. "Output and Abatement Effects of Allocation Readjustment in Permit Trade," RFF Working Paper Series dp-06-49, Resources for the Future.
    7. Adriana Gama, 2020. "Standards and social welfare in Cournot oligopolies," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(3), pages 467-483, July.
    8. Robert W. Hahn & Robert N. Stavins, 2011. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 267-294.
    9. Marschinski, Robert & Edenhofer, Ottmar, 2010. "Revisiting the case for intensity targets: Better incentives and less uncertainty for developing countries," Energy Policy, Elsevier, vol. 38(9), pages 5048-5058, September.
    10. Philippe Quirion, 2022. "Output-based allocation and output-based rebates: a survey," Chapters, in: Handbook on Trade Policy and Climate Change, chapter 7, pages 94-107, Edward Elgar Publishing.
    11. Meunier, Guy & Montero, Juan-Pablo & Ponssard, Jean-Pierre, 2018. "Output-based allocations in pollution markets with uncertainty and self-selection," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 832-851.
    12. Stavins, Robert, 2004. "Environmental Economics," RFF Working Paper Series dp-04-54, Resources for the Future.
    13. Pezzey, John C.V. & Jotzo, Frank, 2010. "Tax-Versus-Trading and Free Emission Shares as Issues for Climate Policy Design," Research Reports 95049, Australian National University, Environmental Economics Research Hub.
    14. Annicchiarico, Barbara & Di Dio, Fabio, 2015. "Environmental policy and macroeconomic dynamics in a new Keynesian model," Journal of Environmental Economics and Management, Elsevier, vol. 69(C), pages 1-21.
    15. Fischer, Carolyn & Springborn, Michael, 2011. "Emissions targets and the real business cycle: Intensity targets versus caps or taxes," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 352-366.
    16. Christoph Böhringer & Andreas Lange, 2005. "Mission Impossible !? On the Harmonization of National Allocation Plans under the EU Emissions Trading Directive," Journal of Regulatory Economics, Springer, vol. 27(1), pages 81-94, September.
    17. Yiyong Cai & Yingying Lu & David Newth & Alison Stegman, 2013. "Modelling Complex Emissions Intensity Targets with a Simple Simulation Algorithm," CAMA Working Papers 2013-33, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    18. Bohringer, Christoph & Lange, Andreas, 2005. "On the design of optimal grandfathering schemes for emission allowances," European Economic Review, Elsevier, vol. 49(8), pages 2041-2055, November.
    19. Olivier Rousse & Benoît Sévi, 2005. "Behavioral Heterogeneity in the US Sulfur Dioxide Emissions Allowance Trading Program," ERSA conference papers ersa05p550, European Regional Science Association.
    20. Harrie A.A. Verbon & Cees A. Withagen, 2004. "Tradable emission permits in a federal system," Economic Working Papers at Centro de Estudios Andaluces E2004/83, Centro de Estudios Andaluces.

    More about this item

    Keywords

    Emissions trading; Entry and exit; Permit allocation; Cap-and-trade; Rate-based emissions trading; H23; H3; Q48; Q52; Q58;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:44:y:2009:i:1:p:107-136. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.