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Distributing pollution rights in cap-and-trade programs : are outcomes independent of allocation?

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  • Fowlie, Meredith
  • Perloff, Jeffrey M

    ()
    (University of California, Berkeley. Dept of agricultural and resource economics and policy)

Abstract

Standard economic theory predicts that if property rights to pollute are clearly established, equilibrium outcomes in an efficient emissions permit market will be independent of how the emissions permits are initially distributed. This so-called independence property has important implications for policy design and implementation. Past studies document a strong positive correlation between the initial permit allocation and firm-level emissions, raising concerns that the independence property is failing to hold in real-world settings. We exploit the random assignment of firms to different permit allocation cycles in Southern California's RECLAIM program in order to test the independence of permit allocation and emissions. Our results lend empirical support to the independence hypothesis. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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

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Bibliographic Info

Paper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 0968R.

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Length: 43pages
Date of creation: 2008
Date of revision:
Handle: RePEc:are:cudare:0968r

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Keywords: air pollution; emissions trading; transaction costs;

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References

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  1. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  2. Juan-Pablo Montero & José Miguel Sánchez & Ricardo Katz, 2000. "A Market-Based Environmental Policy Experiment in Chile," Documentos de Trabajo 192, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. Michael Ari Prager & Thomas H. Klier & Richard H. Mattoon, 1996. "A mixed bag: assessment of market performance and firm trading behavior in the NOx RECLAIM program," Working Paper Series, Regional Economic Issues WP-96-12, Federal Reserve Bank of Chicago.
  4. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  5. 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.
  6. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers 402, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
  8. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
  9. Scott Lee Johnson & David M. Pekelney, 1996. "Economic Assessment of the Regional Clean Air Incentives Market: A New Emissions Trading Program for Los Angeles," Land Economics, University of Wisconsin Press, vol. 72(3), pages 277-297.
  10. Lata Gangadharan, 2000. "Transaction Costs in Pollution Markets: An Empirical Study," Land Economics, University of Wisconsin Press, vol. 76(4), pages 601-614.
  11. Shaul Ben-David & David Brookshire & Stuart Burness & Michael McKee & Christian Schmidt, 2000. "Attitudes toward Risk and Compliance in Emission Permit Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 590-600.
  12. Montero, Juan-Pablo, 1998. "Marketable pollution permits with uncertainty and transaction costs," Resource and Energy Economics, Elsevier, vol. 20(1), pages 27-50, March.
  13. Reimund Schwarze & Peter Zapfel, 2000. "Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of two Major Cap-and-Trade Permit Programs?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(3), pages 279-298, November.
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Cited by:
  1. Olmstead, Sheila M. & Stavins, Robert Norman, 2010. "Three Key Elements of Post-2012 International Climate Policy Architecture," Scholarly Articles 4448992, Harvard Kennedy School of Government.
  2. repec:reg:wpaper:588 is not listed on IDEAS
  3. Christos Constantatos & Eleftherios Filippiadis & Eftichios Sartzetakis, 2014. "Using the allocation of emission permits for strategic trade purposes," Journal of Regulatory Economics, Springer, vol. 45(3), pages 259-280, June.
  4. Hugh McDonald & Suzi Kerr, 2011. "Trading Efficiency in Water Quality Trading Markets: An Assessment of Trade-Offs," Working Papers 11_15, Motu Economic and Public Policy Research.

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