Allowing for household preferences in emission trading-A contribution to the climate policy debate
AbstractIn the context of emission trading it seems to be taken as given that people's preferences can be ignored with respect to the whole process of fixing emission targets and allocating emission permits to polluters. With this paper we want to reopen the debate on how citizens can be involved in this process. We try to show how citizen preferences can be included in the process of pollution control through emission trading. We propose an emission trading system where all emission permits are initially allocated to households who are then allowed to sell them in the permit market or to withhold (at least some of) them in order to reduce total pollution. This proposal tries to overcome the fundamental disadvantage of traditional permit systems which neglect consumer preferences by solely distributing emission permits to producers / polluters. In our system the property right to nature is re-allocated to the households who obtain the opportunity of reducing actual emissions according to their personal preferences by withholding a part or all of the emission permits allotted to them. Such a change in environmental policy would mark a return to the traditional principles of consumer sovereignty by involving households (at least partially) in the social abatement decision process instead of excluding them. Another advantage of admitting households to the TEP market as sellers or buyers of permits is that this increases the number of agents in the permit market and thus significantly reduces the possibilities of strategic market manipulations.
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Bibliographic InfoPaper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2000-09.
Date of creation: May 2000
Date of revision:
Environmental policy; tradable emission permits; climate policy; consumer sovereignty;
Other versions of this item:
- Michael Ahlheim & Friedrich Schneider, 2002. "Allowing for Household Preferences in Emission Trading – A Contribution to the Climate Policy Debate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(4), pages 317-342, April.
- Michael Ahlheim & Friedrich Schneider, 2000. "Allowing for Household Preferences in Emission Trading - A Contribution to the Climate Policy Debate," CESifo Working Paper Series 329, CESifo Group Munich.
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
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