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Trade of Permits for Greenhouse Emissions; Bilateral Trade Need not Be the Answer

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  • Roberto Burguet
  • Jaume Sempere

Abstract

The Kyoto Protocol sets national quotas on CO2 allowing international emissions trading. We argue that this trade is characterized by asymmetric, identitydependent externalities, and show that bilateral trade may not be sufficient for, and may even prevent, an efficient allocation of emissions. We derive conditions under which efficient allocations are the only allocations immune to bilateral trade. The conditions are strong. In this sense, we argue that market design matters.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 163.

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Date of creation: 0000
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Handle: RePEc:bge:wpaper:163

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Related research

Keywords: Terms of Trade; asymmetric externalities; permits trade;

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  1. Cason Timothy N., 1993. "Seller Incentive Properties of EPA's Emission Trading Auction," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 177-195, September.
  2. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 205-234, March.
  3. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March.
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