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Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?

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  • BRECHET, Thierry

    ()
    (Université catholique de Louvain, CORE and Chair Lhoist Berghmans in Environmental Economics and Management, B-1348 Louvain-la-Neuve, Belgium)

  • JOUVET, Pierre - André

    (EconomiX, Université de Paris Ouest, Nanterre – La Défense, France)

  • ROTILLON, Gilles

    (EconomiX, Université de Paris Ouest, Nanterre – La Défense, France)

Abstract

In this paper we study the optimal growth path and its decentralization in a two-sector overlapping- generations model with pollution. One sector (power generation) is polluting and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is whether the optimal growth path can be replicated in equilibrium with pollution permits, given that some permits must be issued free of charge for the sake of political acceptability. We provide a policy rule that allows optimality and acceptability to be reconciled.

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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 2010056.

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Date of creation: 01 Oct 2010
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Handle: RePEc:cor:louvco:2010056

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Keywords: general equilibrium; optimal growth; pollution; tradable emission permits; acceptability;

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  1. BRECHET, Thierry & JOUVET, Pierre - André & ROTILLON, Gilles, 2010. "Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?," CORE Discussion Papers 2010056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics 0639, Faculty of Economics, University of Cambridge.
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  13. Pierre-André Jouvet & Philippe Michel & Gilles Rotillon, 2004. "Optimal growth with pollution : how to use pollution permits ?," Cahiers de la Maison des Sciences Economiques v04012, Université Panthéon-Sorbonne (Paris 1).
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  16. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599.
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  18. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 141-49.
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  1. BRECHET, Thierry & JOUVET, Pierre-André & ROTILLON, Gilles, . "Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?," CORE Discussion Papers RP -2478, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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