IDEAS home Printed from
   My bibliography  Save this article

Tradable Permits versus Tradable Credits: A Survey and Analysis


  • Nentjes, Andries
  • Woerdman, Edwin


This article compares tradable permits with tradable credits, two distinct economic instruments of environmental policy. It is demonstrated that under credit trading, which is an addition to (relative) emission standards, residual emissions are free of cost. Under permit trading (cap-and-trade), residual emissions always have a cost. The economic consequences of this difference are surveyed and analyzed with regard to various issues, including economic efficiency, political acceptance, incentives for adopting clean technologies, and incentives for legal compliance. The review concludes that permit trading is less costly to society than credit trading, but imperfect markets for output may change this ranking. The article reveals several gaps in the literature and formulates some new hypotheses for future research.

Suggested Citation

  • Nentjes, Andries & Woerdman, Edwin, 2012. "Tradable Permits versus Tradable Credits: A Survey and Analysis," International Review of Environmental and Resource Economics, now publishers, vol. 6(1), pages 1-78, January.
  • Handle: RePEc:now:jirere:101.00000047

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Krutilla, Kerry & Alexeev, Alexander, 2014. "The Political Transaction Costs and Uncertainties of Establishing Environmental Rights," Ecological Economics, Elsevier, vol. 107(C), pages 299-309.

    More about this item


    Emissions trading; Cap-and-trade; Credit trading; Economic incentives; Instrument choice; Environmental law and economics;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:jirere:101.00000047. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alet Heezemans). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.