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Alternative intertemporal permit trading regimes with stochastic abatement costs

  • Feng, Hongli
  • Zhao, Jinhua

We examine the social efficiency of alternative intertemporal permit trading regimes. Banking with a 1-to-1 ratio and with a non-unitary intertemporal trading ratio (ITR) are compared with each other and with the no-banking permit trading regime. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient is a bankable permit regime. When the slope of the benefit function is greater than the slope of the damage function, banking with ITR=1+r is more efficient than a no-banking regime. Banking with ITR=1 can be more efficient than a no-banking regime. However, whether ITR=1 or ITR=1+r is better depends on the covariance structure of the shocks and the benefit and damage functions.

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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 28 (2006)
Issue (Month): 1 (January)
Pages: 24-40

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Handle: RePEc:eee:resene:v:28:y:2006:i:1:p:24-40
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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