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Is Trade in Permits Good for the Environment?

Author

Listed:
  • Harvey E. Lapan

    (Iowa State University)

  • Shiva Sikdar

    (Keele University)

Abstract

We analyze the impact of trade in emission permits on environmental policy when countries trade a differentiated good. Pollution is always higher with tradable permits as compared to the case where permits are not internationally tradable. If pollution is a pure global public bad, i.e., the marginal damage from transboundary pollution is the same as that from local pollution, the permit price under trade equals the domestic marginal damage from own emissions. If pollution is not a pure global public bad, i.e., the marginal damage from transboundary pollution is less than that from local pollution, trade results in a permit price lower than the domestic marginal damage from own emissions—pollution is higher under trade relative to autarky. Regardless of the nature of transboundary pollution, the permit price (equivalent pollution tax) is lower and pollution is higher with internationally tradable permits than with nontradable permits.

Suggested Citation

  • Harvey E. Lapan & Shiva Sikdar, 2019. "Is Trade in Permits Good for the Environment?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(2), pages 501-510, February.
    • Handle: RePEc:kap:enreec:v:72:y:2019:i:2:d:10.1007_s10640-017-0202-z
    DOI: 10.1007/s10640-017-0202-z
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    References listed on IDEAS

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    Cited by:

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    2. Thais NUNEZ-ROCHA & Inmaculada MARTíNEZ-ZARZOSO & Chahir ZAKI, 2022. "What type of trade is promoted by environmental regulations?," LEO Working Papers / DR LEO 2988, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    3. Holtsmark, Katinka & Midttømme, Kristoffer, 2021. "The dynamics of linking permit markets," Journal of Public Economics, Elsevier, vol. 198(C).
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    5. Khuc, Quy Van & Vuong, Quan-Hoang, 2020. "Environmental cultural value and global environmental change: By nature, of nature, for nature," OSF Preprints xzsjg, Center for Open Science.
    6. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2021. "Strategic Export Motives and Linking Emission Markets," CESifo Working Paper Series 8847, CESifo.

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    More about this item

    Keywords

    Emission permit trade; Strategic environmental policy; Leakage; Intra-industry trade;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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