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Economic Consequences of Permits Allocation Rules

Author

Listed:
  • Julien Chevallier
  • Pierre-Andre Jouvet
  • Philippe Michel
  • Gilles Rotillon

Abstract

This paper investigates the economic consequences of permits allocation rules. Following the rapid development of the Kyoto Protocol and the EU Emission Trading Scheme, it appears critical to better understand the procedure of allocation of permits between countries/firms and its distributive consequences. Indeed, due to intense political lobbying, the free distribution of permits to existing users as a function of a given benchmark (“grandfathering”) appears as the best solution to facilitate the agreement to the scheme. This paper discusses the pros and the cons of various other allocation rules, such as per capita emissions, per capita GDP, relative historical responsibility, or size of population. The main lesson of this study is that the most efficient free allocation methodology (maximizing world’s production for a given emissions level) consists in distributing permits based on the quantities of efficient labor, while a more equitable solution consists in distributing permits to each production factor proportionally to its share in production.

Suggested Citation

  • Julien Chevallier & Pierre-Andre Jouvet & Philippe Michel & Gilles Rotillon, 2009. "Economic Consequences of Permits Allocation Rules," Economie Internationale, CEPII research center, issue 120, pages 77-90.
  • Handle: RePEc:cii:cepiei:2009-4td
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    File URL: http://www.cepii.fr/IE/rev120/ei120d.htm
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    Citations

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    Cited by:

    1. Badau, Flavius & Färe, Rolf & Gopinath, Munisamy, 2016. "Global resilience to climate change: Examining global economic and environmental performance resulting from a global carbon dioxide market," Resource and Energy Economics, Elsevier, vol. 45(C), pages 46-64.
    2. Julien Chevallier, 2013. "Carbon trading: past, present and future," Chapters,in: Handbook on Energy and Climate Change, chapter 21, pages 471-489 Edward Elgar Publishing.

    More about this item

    Keywords

    Tradable permits market; allocation rules; capital allocation; factor income;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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