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Enforcement and environmental quality in a decentralized emission trading system

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Author Info

  • Alessio D’Amato

    ()

  • Edilio Valentini

    ()

Abstract

This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s11149-011-9153-4
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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 40 (2011)
Issue (Month): 2 (October)
Pages: 141-159

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Handle: RePEc:kap:regeco:v:40:y:2011:i:2:p:141-159

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Web page: http://www.springerlink.com/link.asp?id=100298

Related research

Keywords: Emissions trading; Environmental federalism; Enforcement; Monitoring cost; H70; Q58;

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References

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  1. John Stranlund & Christopher Costello & Carlos Chávez, 2005. "Enforcing Emissions Trading when Emissions Permits are Bankable," Journal of Regulatory Economics, Springer, vol. 28(2), pages 181-204, 09.
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  4. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
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  11. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
  12. Carlos Chavez & John K. Stranlund, 2000. "Enforcing Transferable Permit Systems in the Presence of Market Power," Working Papers 04-2000, Departamento de Economía, Universidad de Concepción.
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  14. Keeler, Andrew G., 1991. "Noncompliant firms in transferable discharge permit markets: Some extensions," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 180-189, September.
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  16. Alessio D Amato & Edilio Valentini, 2011. "A Note on International Emissions Trading with Endogenous Allowance Choices," Economics Bulletin, AccessEcon, vol. 31(2), pages 1451-1462.
  17. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
  18. G T Svendsen, 1998. "The US Acid Rain Program: design, performance, and assessment," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 16(6), pages 723-734, December.
  19. Malik, Arun S., 2002. "Further Results on Permit Markets with Market Power and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 371-390, November.
  20. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
  21. Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, vol. 18(2), pages 113-31, September.
  22. Ulph, Alistair, 1998. "Political institutions and the design of environmental policy in a federal system with asymmetric information," European Economic Review, Elsevier, vol. 42(3-5), pages 583-592, May.
  23. Emilson Silva & Xie Zhu, 2008. "Global trading of carbon dioxide permits with noncompliant polluters," International Tax and Public Finance, Springer, vol. 15(4), pages 430-459, August.
  24. Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November.
  25. Kruger, Joseph & Oates, Wallace E. & Pizer, William A., 2007. "Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy," Discussion Papers dp-07-02, Resources For the Future.
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Citations

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Cited by:
  1. Simone Borghesi, 2011. "European Climate Policy: Critical Aspects," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 2, June.
  2. Katarina Elofsson, 2011. "Delegation of Decision-Rights for Wetlands," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 50(2), pages 285-303, October.

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