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Permit Allocation in Emissions Trading using the Boltzmann Distribution

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  • Ji-Won Park
  • Chae Un Kim
  • Walter Isard
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    Abstract

    In emissions trading, the initial allocation of permits is an intractable issue because it needs to be essentially fair to the participating countries. There are many ways to distribute a given total amount of emissions permits among countries, but the existing distribution methods, such as auctioning and grandfathering, have been debated. In this paper we describe a new method for allocating permits in emissions trading using the Boltzmann distribution. We introduce the Boltzmann distribution to permit allocation by combining it with concepts in emissions trading. We then demonstrate through empirical data analysis how emissions permits can be allocated in practice among participating countries. The new allocation method using the Boltzmann distribution describes the most probable, natural, and unbiased distribution of emissions permits among multiple countries. Simple and versatile, this new method holds potential for many economic and environmental applications.

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    File URL: http://arxiv.org/pdf/1108.2305
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1108.2305.

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    Date of creation: Aug 2011
    Date of revision: Mar 2012
    Publication status: Published in Physica A 2012
    Handle: RePEc:arx:papers:1108.2305

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    Web page: http://arxiv.org/

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