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Allocation and banking in Korean permits trading

Author

Listed:
  • Cho, G.L.
  • Kim, Hyo-Sun
  • Kim, Y.D.

Abstract

This paper investigates how Korean industry would respond to four different allocation and banking options in CO2 permit trading within a fully dynamic computational general equilibrium framework. Four different allocations are categorized--a uniform allocation and three performance-based allocations. We explore that performance-based allocation and banking lower losses in Korean potential GDP, allowing energy-intensive industry more flexibility in inter-temporal decision making on purchasing and selling permits. The steel industry can derive a particular advantage from a performance-based allocation with respect to energy use, while the semiconductor industry would prefer a performance-based allocation with respect to value-added. The two key conclusions are (i) the Korean economy should replace an absolute allocation with a performance-based allocation, and (ii) the banking of permits enables market players to reallocate allowances more efficiently in a long-term commitment period. These results support the findings of the key study by Kling and Rubin (1997).

Suggested Citation

  • Cho, G.L. & Kim, Hyo-Sun & Kim, Y.D., 2010. "Allocation and banking in Korean permits trading," Resources Policy, Elsevier, vol. 35(1), pages 36-46, March.
  • Handle: RePEc:eee:jrpoli:v:35:y:2010:i:1:p:36-46
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    References listed on IDEAS

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    1. Goulder, Lawrence H. & Summers, Lawrence H., 1989. "Tax policy, asset prices, and growth : A general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 38(3), pages 265-296, April.
    2. Kling, Catherine & Rubin, Jonathan, 1997. "Bankable permits for the control of environmental pollution," Journal of Public Economics, Elsevier, vol. 64(1), pages 101-115, April.
    3. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
    4. Bernstein, Paul M. & Montgomery, W. David & Rutherford, Thomas F., 1999. "Global impacts of the Kyoto agreement: results from the MS-MRT model," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 375-413, August.
    5. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-189, March.
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    Cited by:

    1. Yun Fei Yao & Qiao-Mei Liang & Dong-Wei Yang & Hua Liao & Yi-Ming Wei, 2016. "How China’s current energy pricing mechanisms will impact its marginal carbon abatement costs?," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 21(6), pages 799-821, August.
    2. Saem Lee & Trung Thanh Nguyen & Patrick Poppenborg & Hio-Jung Shin & Thomas Koellner, 2016. "Conventional, Partially Converted and Environmentally Friendly Farming in South Korea: Profitability and Factors Affecting Farmers’ Choice," Sustainability, MDPI, Open Access Journal, vol. 8(8), pages 1-18, July.

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