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Tradable Permits vs Ecological Dumping

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  • Fabio Antoniou
  • Panos Hatzipanayotou

    ()

  • Phoebe Koundouri

Abstract

In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to underregulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.

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File URL: http://www.landecon.cam.ac.uk/RePEc/pdf/502010.pdf
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Bibliographic Info

Paper provided by University of Cambridge, Department of Land Economics in its series Environmental Economy and Policy Research Working Papers with number 50.2010.

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Date of creation: 2010
Date of revision: 2010
Handle: RePEc:lnd:wpaper:502010

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Keywords: Strategic environmental policy; Tradable permits; Race to the top.;

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  1. Eftichios Sartzetakis, 2004. "On the Efficiency of Competitive Markets for Emission Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(1), pages 1-19, January.
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  3. David Malueg & Andrew Yates, 2009. "Bilateral Oligopoly, Private Information, and Pollution Permit Markets," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(4), pages 553-572, August.
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  7. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
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  13. Rose, Adam & Peterson, Thomas D. & Zhang, ZhongXiang, 2006. "Regional carbon dioxide permit trading in the United States: coalition choices for Pennsylvania," MPRA Paper 13547, University Library of Munich, Germany.
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  18. repec:clg:wpaper:2008-02 is not listed on IDEAS
  19. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 137-154, February.
  20. Karl-Martin Ehrhart & Christian Hoppe & Ralf Löschel, 2008. "Abuse of EU Emissions Trading for Tacit Collusion," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(3), pages 347-361, November.
  21. Greaker, Mads, 2003. "Strategic environmental policy; eco-dumping or a green strategy?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 692-707, May.
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