Marketable Permit Designs For The Methyl Bromide Critical Use Exemption Request In The United States

This paper analyzes potential cost savings to the U.S. agricultural sector associated with applying marketable permit designs for methyl bromide critical use exemptions (CUE), under the phase-out of methyl bromide. A necessary condition for an efficient trading system is heterogeneity among methyl bromide users with respect to the costs of switching to potential alternative pest control measures, which would lead to cost savings from trading. Using data on these costs from current methyl bromide users, the authors show that this necessary condition appears to be met, and characterize the potential cost savings that could occur if critical use permits can be traded from methyl bromide users with lower costs to those with higher costs. Several potential mechanisms for implementing these trades are considered, and differ in the extent to which permit for use may be traded within a commodity-use, or traded among methyl bromide users producing different commodities. The total incremental costs of the simulated trading system were higher when permits are traded only among methyl bromide users within a commodity sector, while the costs were lowest when the methyl bromide users are allowed to freely trade their permits across sectors.