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Allowing for Household Preferences in Emission Trading – A Contribution to the Climate Policy Debate

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  • Michael Ahlheim

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  • Friedrich Schneider

Abstract

In the context of emission trading it seems to be taken as given that people's preferences can be ignored with respect to the whole process of fixing emission targets and allocating emission permits to polluters. With this paper we want to reopen the debate on how citizens can be involved in this process. We try to show how citizen preferences can be included in the process of pollution control through emission trading. We propose an emission trading system where all emission permits are initially allocated to households who are then allowed to sell them in the permit market or to withhold (at least some of) them in order to reduce total pollution. This proposal tries to overcome the fundamental disadvantage of traditional permit systems which neglect consumer preferences by solely distributing emission permits to producers / polluters. In our system the property right to nature is re-allocated to the households who obtain the opportunity of reducing actual emissions according to their personal preferences by withholding a part or all of the emission permits allotted to them. Such a change in environmental policy would mark a return to the traditional principles of consumer sovereignty by involving households (at least partially) in the social abatement decision process instead of excluding them. Another advantage of admitting households to the TEP market as sellers or buyers of permits is that this increases the number of agents in the permit market and thus significantly reduces the possibilities of strategic market manipulations. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Michael Ahlheim & Friedrich Schneider, 2002. "Allowing for Household Preferences in Emission Trading – A Contribution to the Climate Policy Debate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(4), pages 317-342, April.
  • Handle: RePEc:kap:enreec:v:21:y:2002:i:4:p:317-342
    DOI: 10.1023/A:1015120502007
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    Cited by:

    1. Smith, Stefani C. & Yates, Andrew J., 2003. "Optimal pollution permit endowments in markets with endogenous emissions," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 425-445, November.
    2. Bristow, Abigail L. & Wardman, Mark & Zanni, Alberto M. & Chintakayala, Phani K., 2010. "Public acceptability of personal carbon trading and carbon tax," Ecological Economics, Elsevier, vol. 69(9), pages 1824-1837, July.
    3. Menges, Roland, 2003. "Supporting renewable energy on liberalised markets: green electricity between additionality and consumer sovereignty," Energy Policy, Elsevier, vol. 31(7), pages 583-596, June.
    4. Malueg, David A. & Yates, Andrew J., 2006. "Citizen participation in pollution permit markets," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 205-217, March.
    5. Asproudis, Elias & Weyman-Jones, Tom, 2011. "Third parties �participation in tradable permits market. Do we need them?," MPRA Paper 28766, University Library of Munich, Germany.
    6. Rousse, Olivier, 2008. "Environmental and economic benefits resulting from citizens' participation in CO2 emissions trading: An efficient alternative solution to the voluntary compensation of CO2 emissions," Energy Policy, Elsevier, vol. 36(1), pages 388-397, January.
    7. Diana Piloyan, 2009. "The Clean Development Mechanism: Mexico’s Contribution to the Mitigation of Global Climate Change," Working Papers 0309, Universidad Iberoamericana, Department of Economics.
    8. Wadud, Zia, 2011. "Personal tradable carbon permits for road transport: Why, why not and who wins?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1052-1065.
    9. Joachim Schleich & Claudia Schwirplies & Andreas Ziegler, 2014. "Private provision of public goods: Do individual climate protection efforts depend on perceptions of climate policy?," MAGKS Papers on Economics 201453, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Peifang Yang & Daniel T. Kaffine, 2016. "Community-Based Tradable Permits for Localized Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(4), pages 773-788, December.
    11. Dafna Eshel & Richard Sexton, 2009. "Allowing communities to trade in imperfectly competitive pollution-permit markets," Journal of Regulatory Economics, Springer, vol. 36(1), pages 60-82, August.
    12. repec:ebl:ecbull:v:17:y:2007:i:4:p:1-9 is not listed on IDEAS

    More about this item

    Keywords

    environmental policy; tradable emission permits; climate policy; consumer sovereignty;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection

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