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Tradable Permit Tariffs: How Local Air Pollution Affects Carbon Emissions Permit Trading

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  • Randall Lutter
  • Jason F. Shogren

Abstract

Recent literature on greenhouse gas controls shows the costs of climate protection can be offset by the ancillary benefits generated from lower local air pollution. We show here that such ancillary benefits imply the unfettered price of carbon emissions permits observed in tradable permit markets might significantly exceed the incremental social cost of controlling carbon emissions. This difference can help to justify market interventions such as an import tariff on permits traded internationally. Uncertainty about the nature of local air pollution regulation and the variabilityandmagnitudeofancillarybenefitsmaycomplicate substantially the design of cost-effective carbon policies.

Suggested Citation

  • Randall Lutter & Jason F. Shogren, 2002. "Tradable Permit Tariffs: How Local Air Pollution Affects Carbon Emissions Permit Trading," Land Economics, University of Wisconsin Press, vol. 78(2), pages 159-170.
  • Handle: RePEc:uwp:landec:v:78:y:2002:i:2:p:159-170
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    References listed on IDEAS

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    1. Dallas Burtraw & Karen Palmer & Alan J. Krupnick, 1997. ""Second-Best" Adjustments to Externality Estimates in Electricity Planning with Competition," Land Economics, University of Wisconsin Press, vol. 73(2), pages 224-239.
    2. Jason Shogren, 1998. "A Political Economy in an Ecological Web," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 557-570, April.
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    Cited by:

    1. repec:gii:giihei:ciesrp:cies_rp_26 is not listed on IDEAS
    2. Sadegheih, A., 2010. "A novel formulation of carbon emissions costs for optimal design configuration of system transmission planning," Renewable Energy, Elsevier, vol. 35(5), pages 1091-1097.
    3. Chiara Ravetti & Timothy Swanson & Mu Quan & Xuxuan Xie & Zhang Shiqiu, 2014. "Ancillary Benefits of GHG Abatement Policies in Developing Countries: A literature Survey," CIES Research Paper series 26-2014, Centre for International Environmental Studies, The Graduate Institute.
    4. Pittel, Karen & Rübbelke, Dirk T.G., 2008. "Climate policy and ancillary benefits: A survey and integration into the modelling of international negotiations on climate change," Ecological Economics, Elsevier, vol. 68(1-2), pages 210-220, December.
    5. Sadegheih, A., 2011. "Optimal design methodologies under the carbon emission trading program using MIP, GA, SA, and TS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(1), pages 504-513, January.
    6. Burtraw, Dallas & Palmer, Karen & Krupnick, Alan & Toman, Michael & Paul, Anthony & Bloyd, Cary, 2001. "Ancillary Benefits of Reduced Air Pollution in the United States from Moderate Greenhouse Gas Mitigation Policies in the Electricity Sector," Discussion Papers dp-01-61-, Resources For the Future.

    More about this item

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices

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