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Does emission discrimination improve environmental effectiveness of emission trading schemes? A duopoly approach

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  • Zhe Chen
  • Yue Su
  • Xue-ying Wang
  • You Wu

Abstract

In this paper, we theoretically analyze that how emission discrimination policies affect the environmental effectiveness of carbon emission trading scheme under different emission permit allocation rules. By the setting of duopoly, we characterize the environmental effectiveness of carbon emission trading scheme, design various emission discrimination policies and then explore connections between the environmental effectiveness and emission discrimination policies. Our main results suggest that not all environmental effectiveness of carbon emission trading schemes are very sensitive to emission discrimination policies. Under grandfathering rule, the emission discrimination policy is not valid to facilitate the environmental effectiveness of carbon emission trading scheme. However under benchmarking rule, the environmental effectiveness of carbon emission trading scheme can be remarkably improved by an appropriate emission discrimination policy. Furthermore, we also compare the actual emissions in carbon emission trading schemes and conclude that the carbon emission trading scheme with benchmarking rule is a better choice for an ‘active’ regulatory authority from the viewpoint of policy efficiency.

Suggested Citation

  • Zhe Chen & Yue Su & Xue-ying Wang & You Wu, 2021. "Does emission discrimination improve environmental effectiveness of emission trading schemes? A duopoly approach," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 2210-2224, January.
    • Handle: RePEc:taf:reroxx:v:34:y:2021:i:1:p:2210-2224
    DOI: 10.1080/1331677X.2020.1861960
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