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On the Strategic Effect of International Permits Trading on Local Pollution

Author

Listed:
  • Fabio Antoniou

    (University of Ioannina
    Humboldt-University)

  • Efthymia Kyriakopoulou

    (Swedish University of Agricultural Sciences)

Abstract

We introduce a model of strategic environmental policy where two firms compete à la Cournot in a third market in the presence of multiple pollutants. Two types of pollutants are introduced: a local and a transboundary one. The regulator can only control local pollution as transboundary pollution is regulated internationally. We illustrate that when transboundary pollution is regulated through the use of tradable emission permits instead of non-tradable ones then a new strategic effect appears which has not been identified thus far. In this case, local pollution increases further. We caution that linking permit markets across regions may be welfare detrimental. We also provide evidence from the implementation of EU ETS over the pollution of particulate matters ( $$PM_{10}$$ P M 10 and $$PM_{2.5})$$ P M 2.5 ) .

Suggested Citation

  • Fabio Antoniou & Efthymia Kyriakopoulou, 2019. "On the Strategic Effect of International Permits Trading on Local Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1299-1329, November.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:3:d:10.1007_s10640-019-00369-0
    DOI: 10.1007/s10640-019-00369-0
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    Cited by:

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    More about this item

    Keywords

    Environmental regulation; Multiple pollutants; (Non) tradable permits; Strategic interactions;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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