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Reduced Allowability and the Allocation of Emission Abatement

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  • Sabine Aresin

Abstract

Introducing discounts on Certiï¬ ed Emission Reductions from the Clean Development Mechanism is often treated as if it only imposed a substitution effect on a ï¬ rm’s decision between domestic and abroad abatement. Applying a cost minimization approach with a representative ï¬ rm, I can show that reduced allowability generates a quantity effect in addition to the substitution effect. This quantity effect counteracts the substitution effect for abroad abatement. It may even cause abroad abatement to increase as a result of reduced allowability for Certiï¬ ed Emission Reductions. The results are robust to introducing a secondary market for emission credits, given endogenous prices.

Suggested Citation

  • Sabine Aresin, 2015. "Reduced Allowability and the Allocation of Emission Abatement," Working Papers tax-mpg-rps-2015-12, Max Planck Institute for Tax Law and Public Finance.
    • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2015-12
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    References listed on IDEAS

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    More about this item

    Keywords

    Clean Development Mechanism; Import restrictions; Allowability; Green House Gas offset; Abatement;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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