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Double-dipping in environmental markets

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  • Woodward, Richard T.

Abstract

There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such "double-dipping", because it would make the provision of environmental services more profitable. In practice however, most programs do not allow double-dipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double-dipping can lead to greater social net benefits. We explore conditions under which a single-market policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.

Suggested Citation

  • Woodward, Richard T., 2011. "Double-dipping in environmental markets," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 153-169, March.
  • Handle: RePEc:eee:jeeman:v:61:y:2011:i:2:p:153-169
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    Cited by:

    1. Jimena González-Ramírez & Catherine L. Kling & Adriana Valcu, 2012. "An Overview of Carbon Offsets from Agriculture," Annual Review of Resource Economics, Annual Reviews, vol. 4(1), pages 145-160, August.
    2. repec:eee:jeeman:v:85:y:2017:i:c:p:130-145 is not listed on IDEAS
    3. repec:eee:ecoser:v:29:y:2018:i:pa:p:137-144 is not listed on IDEAS
    4. G. Cornelis van Kooten & Craig Johnston & Zhen Xu, 2012. "Economics of Forest Carbon Sequestration," Working Papers 2012-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    5. Karen Fisher-Vanden & Sheila Olmstead, 2013. "Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 147-172, Winter.
    6. repec:eee:ecoser:v:15:y:2015:i:c:p:84-92 is not listed on IDEAS
    7. Yeo, Boon-Ling & Anastasiadis, Simon & Kerr, Suzi & Browne, Oliver, 2012. "Synergies between Nutrient Trading Scheme and the New Zealand Greenhouse Gas (GHG) Emissions Trading Scheme (ETS) in the Lake Rotorua Catchment," 2012 Conference, August 31, 2012, Nelson, New Zealand 144270, New Zealand Agricultural and Resource Economics Society.
    8. repec:eee:resene:v:52:y:2018:i:c:p:124-136 is not listed on IDEAS
    9. Stranlund, John K. & Son, Insung, 2015. "Prices versus Quantities versus Hybrids in the Presence of Co-pollutants," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205422, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    10. Crago, Christine L. & Stranlund, John K., 2015. "Optimal regulation of carbon and co-pollutants with spatially differentiated damages," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205594, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    11. Valcu, Adriana Mihaela, 2013. "Agricultural nonpoint source pollution and water quality trading: empirical analysis under imperfect cost information and measurement error," ISU General Staff Papers 201301010800004451, Iowa State University, Department of Economics.
    12. James Shortle & Richard D. Horan, 2013. "Policy Instruments for Water Quality Protection," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 111-138, June.

    More about this item

    Keywords

    Environmental policy Tradable discharge permits Numerical methods Stacking;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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