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Enforcing Emissions Trading when Emissions Permits are Bankable

Author Info

Listed author(s):
  • John Stranlund

    ()

  • Christopher Costello

    ()

  • Carlos Chávez

    ()

Abstract

We propose enforcement strategies for emissions trading programs with bankable emissions permits that guarantee complete compliance with minimal enforcement costs. Our strategies emphasize imperfect monitoring supported by a high unit penalty for reporting violations, and tying this penalty directly to equilibrium permit prices. This approach is quite different from several existing enforcement strategies that emphasize high unit penalties for emissions in excess of permit holdings. Our analysis suggests that a high penalty for excess emissions cannot be used to conserve monitoring effort, and that it may actually increase the amount of monitoring necessary to maintain compliance. Copyright Springer Science+Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11149-005-3108-6
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Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 28 (2005)
Issue (Month): 2 (09)
Pages: 181-204

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Handle: RePEc:kap:regeco:v:28:y:2005:i:2:p:181-204
DOI: 10.1007/s11149-005-3108-6
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/industrial+organization/journal/11149/PS2

Keywords: compliance; enforcement; emissions trading; permit banking; L51; Q28;

Find related papers by JEL classification:

  • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
  • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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  1. Ellerman, A.D. & Juan-Pablo Montero, 2002. "The Temporal Efficiency of SO2 Emissions Trading," Cambridge Working Papers in Economics 0231, Faculty of Economics, University of Cambridge.
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Cited by:

  1. John Stranlund, 2007. "The regulatory choice of noncompliance in emissions trading programs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(1), pages 99-117, September.
  2. Restiani, Phillia & Betz, Regina, 2010. "A Theoretical Model of Optimal Compliance Decisions under Different Penalty Designs in Emissions Trading Markets," Research Reports 107585, Australian National University, Environmental Economics Research Hub.
  3. Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2011. "An experimental analysis of compliance in dynamic emissions markets," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 414-429.
  4. Cason, Timothy N., 2010. "What Can Laboratory Experiments Teach Us About Emissions Permit Market Design?," Agricultural and Resource Economics Review, Cambridge University Press, vol. 39(02), pages 151-161, April.
  5. Marc Chesney & Luca Taschini & Mei Wang, 2011. "Regulated and non-regulated companies, technology adoption in experimental markets for emission permits, and options contracts," LSE Research Online Documents on Economics 37577, London School of Economics and Political Science, LSE Library.
  6. Motta, Alberto & Burlando, Alfredo, 2007. "Self reporting reduces corruption in law enforcement," MPRA Paper 5332, University Library of Munich, Germany, revised 23 Jun 2007.
  7. Chevallier, Julien & Le Pen, Yannick & Sévi, Benoît, 2011. "Options introduction and volatility in the EU ETS," Resource and Energy Economics, Elsevier, vol. 33(4), pages 855-880.
  8. Alessio D’Amato & Edilio Valentini, 2011. "Enforcement and environmental quality in a decentralized emission trading system," Journal of Regulatory Economics, Springer, vol. 40(2), pages 141-159, October.
  9. Ian MacKenzie & Markus Ohndorf, 2012. "Optimal monitoring of credit-based emissions trading under asymmetric information," Journal of Regulatory Economics, Springer, vol. 42(2), pages 180-203, October.
  10. John K. Stranlund, 2006. "Risk Aversion and Compliance in Markets for Pollution Control," Working Papers 2006-2, University of Massachusetts Amherst, Department of Resource Economics.
  11. Luca Taschini & Marc Chesney & Mei Wang, 2014. "Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies," Journal of Regulatory Economics, Springer, vol. 46(1), pages 23-50, August.
  12. Franz Wirl & Juergen Noll, 2008. "Abatement and Permits when Pollution is Uncertain and Violations are Fined," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 299-312, June.

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