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Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications

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Eftichios Sartzetakis

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Abstract

In the present paper, we analyse the interaction of a competitive market for emission permits with an oligopolistic product market. It is well known that a competitive permits market achieves the cost minimizing distribution of abatement effort among the polluting firms for a given reduction in emissions. However, when the product market is oligopolistic, it may redistribute production inefficiently among firms. It has been suggested that this inefficiency can outweigh the gains obtained from using emission permits instead of command and control. Although this argument is clearly correct under full information, it is shown in the present paper that it reverses under incomplete information. In particular, it is shown that when tradeable emission permits are specified according to the standard textbook example, they yield higher social welfare than the command and control regulation. Copyright Kluwer Academic Publishers 1997

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

Volume (Year): 9 (1997)
Issue (Month): 1 (January)
Pages: 65-81
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Handle: RePEc:kap:enreec:v:9:y:1997:i:1:p:65-81

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Keywords: emission permits; oligopoly; welfare;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Besanko, David, 1987. "Performance versus design standards in the regulation of pollution," Journal of Public Economics, Elsevier, vol. 34(1), pages 19-44, October. [Downloadable!] (restricted)
  2. Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January. [Downloadable!] (restricted)
  3. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March. [Downloadable!] (restricted)
  4. Borenstein, Severin, 1988. "On the Efficiency of Competitive Markets for Operating Licenses," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 357-85, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Requate, Till, 2005. "Environmental Policy under Imperfect Competition : A Survey," Economics Working Papers 2005,12, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  2. PRATLONG Florent, 2005. "Environmental regulation incidences towards international oligopolies: pollution taxes vs emission permits," Economics Bulletin, Economics Bulletin, vol. 17(5), pages 1-9. [Downloadable!]
  3. Julien Pierre Chevallier, 2007. "A differential game of intertemporal emissions trading with market power," EconomiX Working Papers 2007-18, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  4. Kjell Sunnevåg, 2001. "Auction design for the allocation of emission permits," University of California at Santa Barbara, Economics Working Paper Series wp5-01, Department of Economics, UC Santa Barbara. [Downloadable!]
  5. Eftichios Sartzetakis, 2004. "On the Efficiency of Competitive Markets for Emission Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(1), pages 1-19, January. [Downloadable!] (restricted)
  6. repec:mop:credwp:04.06.46 is not listed on IDEAS
  7. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Böhringer, Christoph & Löschel, Andreas, 2001. "Market power in international emissions trading : the impact of U.S. withdrawal from the Kyoto Protocol," ZEW Discussion Papers 01-58, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  9. Kjell Sunnevåg, 2003. "Auction Design for the Allocation of Emission Permits in the Presence of Market Power," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(3), pages 385-400, November. [Downloadable!] (restricted)
  10. Hagem, Cathrine & Mæstad, Ottar, 2003. "Market power in the market for greenhouse gas emissions permits - the interplay with the fossil fuel markets," Memorandum 34/2002, Oslo University, Department of Economics. [Downloadable!]
  11. Florent Pratlong, 2005. "Environmental regulation incidences towards international oligopolies: pollution taxes vs emission permits," Economics Bulletin, Economics Bulletin, vol. 17(6), pages 1-10. [Downloadable!]
  12. Zhang, ZhongXiang & Löschel, Andreas, 2002. "The Economic and Environmental Implications of the US Repudiation of the Kyoto Protocol and the Subsequent Deals in Bonn and Marrakech," ZEW Discussion Papers 02-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  13. Christoph BÖhringer & Andreas LÖschel, 2003. "Market power and hot air in international emissions trading: the impacts of US withdrawal from the Kyoto Protocol," Applied Economics, Taylor and Francis Journals, vol. 35(6), pages 651-663, January. [Downloadable!] (restricted)
  14. Harrie A. A Verbon & Cees A. Withagen, 2005. "Tradable Emission Permits in a Federal System," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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