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

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  • Rotillon, Gilles
  • Jouvet, Pierre-André
  • Bréchet, Thierry

Abstract

In this paper we study the dynamic general equilibrium path of an economy and the associated optimal growth path in a two-sector overlapping generation model with a stock pollutant. A sector (power generation) is polluting, and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is to see 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 first analyze the many adverse impacts of free allowances, and then we propose a policy rule that allows optimality and acceptability to be reconciled.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/12953.

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Date of creation: Jul 2013
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Publication status: Published in Ecological Economics, 2013, Vol. 91
Handle: RePEc:dau:papers:123456789/12953

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Keywords: General equilibrium; Optimal growth; Pollution; Tradable emission permits; Acceptability;

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  1. Pierre-André Jouvet & Philippe Michel & Gilles Rotillon, 2004. "Optimal growth with pollution : how to use pollution permits ?," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) v04012, Université Panthéon-Sorbonne (Paris 1).
  2. Thierry Bréchet & Pierre-André Jouvet & Gilles Rotillon, 2011. "Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?," Working Papers 1102, Chaire Economie du Climat.
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Cited by:
  1. Thierry Bréchet & Pierre-André Jouvet & Gilles Rotillon, 2011. "Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?," Working Papers 1102, Chaire Economie du Climat.

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