Using the allocation of emission permits for Strategic Trade purposes
AbstractWhen the market of tradable emissions permits is perfectly competitive, free allocation of permits through some discretionary rules corresponds to lump sum transfers and cannot have strategic effects. This conclusion is reversed when transactions costs are introduced in the TEP market. Transactions costs proportional to the value of permits exchanged create a gap between selling and the buying price, thus resulting in lower opportunity costs for the holder of excess permits. This can be effectively exploited by a government in order to encourage its firm to gain larger share in an international market. When costs per transaction are fixed, the above effects disappear for those firms participating in the market. For small firms, however, participation may be prohibitively expensive, turning the opportunity cost of any permits hold, equal to zero. This suggests that free permits may create strategic effects within the hands of small firms but not when granted to larger firms.
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Bibliographic InfoPaper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2011_09.
Date of creation: Jun 2011
Date of revision: Jun 2011
Tradeable Emissions Permits; strategic trade policy.;
Find related papers by JEL classification:
- Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-30 (All new papers)
- NEP-ENE-2011-05-30 (Energy Economics)
- NEP-ENV-2011-05-30 (Environmental Economics)
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