Enforcement and Environmental Quality in a Decentralized Emission Trading System
AbstractThis paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.97.
Date of creation: Dec 2008
Date of revision:
Emissions Trading; Environmental Federalism; Enforcement; Monitoring Cost;
Other versions of this item:
- Alessio D’Amato & Edilio Valentini, 2011. "Enforcement and environmental quality in a decentralized emission trading system," Journal of Regulatory Economics, Springer, vol. 40(2), pages 141-159, October.
- F18 - International Economics - - Trade - - - Trade and Environment
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
This paper has been announced in the following NEP Reports:
- NEP-AGR-2009-01-17 (Agricultural Economics)
- NEP-ALL-2009-01-17 (All new papers)
- NEP-ENE-2009-01-17 (Energy Economics)
- NEP-ENV-2009-01-17 (Environmental Economics)
- NEP-LAW-2009-01-17 (Law & Economics)
- NEP-REG-2009-01-17 (Regulation)
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