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Trade of Permits for Greenhouse Gas Emissions: Bilateral Trade Need not be the Answer

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  • Roberto Burguet

    ()

  • Jaume Sempere

    ()

Abstract

The Kyoto Protocol sets national quotas on CO2 emissions and allows international trade of these quotas. We argue that this trade is characterized by asymmetric, identity-dependent externalities, and show that bilateral trade may not be sufficient for an efficient allocation of emissions. We derive conditions under which bilateral trade does improve the allocation of permits. The conditions are strong. In this sense, we argue that, for emissions permits, market design matters.

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File URL: http://hdl.handle.net/10.1007/s10640-010-9351-z
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 46 (2010)
Issue (Month): 4 (August)
Pages: 495-509

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Handle: RePEc:kap:enreec:v:46:y:2010:i:4:p:495-509

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Web page: http://www.springerlink.com/link.asp?id=100263

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Keywords: Terms-of-trade; Asymmetric externalities; Permits trade; D62; F18;

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  1. 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.
  2. Jehiel, Philippe & Moldovanu, Benny, 1999. "Resale Markets and the Assignment of Property Rights," Review of Economic Studies, Wiley Blackwell, vol. 66(4), pages 971-91, October.
  3. Brian R. Copeland & M. Scott Taylor, 2000. "Free Trade and Global Warming: A Trade Theory View of the Kyoto Protocol," NBER Working Papers 7657, National Bureau of Economic Research, Inc.
  4. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
  5. Peter Cramton & Suzi Kerr, 1999. "The Distributional Effects of Carbon Regulation: Why Auctioned Carbon Permits are Attractive and Feasible," Papers of Peter Cramton 99eedecr, University of Maryland, Department of Economics - Peter Cramton, revised Feb 1998.
  6. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
  7. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-29, September.
  8. Bagwell, Kyle & Mavroidis, Petros C. & Staiger, Robert W., 2007. "Auctioning countermeasures in the WTO," Journal of International Economics, Elsevier, vol. 73(2), pages 309-332, November.
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Cited by:
  1. Elvio Accinelli & Leobardo Plata & Martín Puchet, 2007. "Can a reallocation of initial endowments improve social welfare?," Documentos de Trabajo (working papers) 0807, Department of Economics - dECON.

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