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The race for polluting permits

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  • BRECHET, Thierry

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • PERALTA, Susana

Abstract

International markets for tradable emission permits (TEP) co-exist with national energy taxation. A firm trading emission permits in the international market also pays energy taxes in its host country, thus creating an interaction between the international TEP-market and national energy taxes. In this paper we model that interaction in a framework of a perfectly competitive international TEP-market, where heterogeneous firms trade their TEP endowments. National governments set energy taxes non-cooperatively so as to maximize fiscal revenue from energy and profit taxes. We identify the driving forces behind Nash equilibrium taxes. We show how they depend on the total amount of TEPs in the market, on firms TEP-endowment and on thenumber of participating countries. We also show how energy taxation varies with the introduction of the market on a previously unregulated world. Finally, we highlight the fact that the TEP-market does not achieve abatement cost efficiency, despite itsbeing perfectly competitive.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007027.

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Date of creation: 01 Mar 2007
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Handle: RePEc:cor:louvco:2007027

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Related research

Keywords: tradable permits; fiscal competition; Kyoto protocol;

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  1. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  2. DePeter James A. & Myers Gordon M., 1994. "Strategic Capital Tax Competition: A Pecuniary Externality and a Corrective Device," Journal of Urban Economics, Elsevier, vol. 36(1), pages 66-78, July.
  3. Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
  4. Santore, Rudy & Robison, H. David & Klein, Yehuda, 2001. "Strategic state-level environmental policy with asymmetric pollution spillovers," Journal of Public Economics, Elsevier, vol. 80(2), pages 199-224, May.
  5. Laussel, Didier & Le Breton, Michel, 1998. "Existence of Nash equilibria in fiscal competition models," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 283-296, May.
  6. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  7. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
  8. Peralta, Susana & van Ypersele, Tanguy, 2005. "Factor endowments and welfare levels in an asymmetric tax competition game," Journal of Urban Economics, Elsevier, vol. 57(2), pages 258-274, March.
  9. Goulder Lawrence H., 1995. "Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 271-297, November.
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Cited by:
  1. Valeria Costantini & Alessio D'Amato & Chiara Martini & Maria Cristina Tommasino & Edilio Valentini & Mariangela Zoli, 2011. "Taxing international emissions trading," Departmental Working Papers of Economics - University 'Roma Tre' 0143, Department of Economics - University Roma Tre.
  2. Thomas Eichner & Rüdiger Pethig, 2010. "International carbon emissions trading and strategic incentives to subsidize green energy," Volkswirtschaftliche Diskussionsbeiträge 142-10, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  3. Odd Godal & Bjart Holtsmark, 2010. "International emissions trading with endogenous taxes," Discussion Papers 626,, Research Department of Statistics Norway.
  4. BRECHET, Thierry & PERALTA, Susana, 2012. "Markets for tradable emission permits with fiscal competition," CORE Discussion Papers 2012054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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