Distributing the Value of a Country’s Tradeable Carbon Permits
A general proposal is made for initially distributing the total value of tradeable carbon permits in a developed country, which tries to balance allocative and informational efficiency, political acceptability, and equity. Because of the macroeconomic significance of carbon, the proposal is quite different from and more complex than, say, the distribution used for SO2 permits in the US sulphur trading programme. We suggest that acceptability requires a political (but not legal) principle of compensating for the profit that an industry loses because of carbon control. However, fossil fuel demand is relatively inelastic, so making all permits free (grandfathered) to industries while reducing total carbon use would give them large monopoly profits which would overcompensate for their losses. Compensation therefore requires only a small proportion (much less than half) of an industry’s carbon permits to be free. Remaining permits would be auctioned, or given free to households. If a sizeable part of permits is auctioned with revenues recycled as lower rates of corporate and/or personal income tax, then most firms outside the fossil fuel industries would benefit from carbon control, and so need no compensation. We argue that consumers also deserve compensation for higher prices of fuel and carbonintensive products. The split of such compensation between lump sums (free permits or cash) and personal tax cuts depends on the desired balance between equity and efficiency. Arguments are also discussed for distributing permit value as assistance to workers that face unemployment caused by carbon control. Many other details of a distribution scheme are discussed, such as where permits should be acquitted, whether free permits distort competition, whether foreign-owned firms should get free permits, and whether free permits should be phased out.
|Date of creation:||Jan 2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 0409 032 338
Web page: http://www.aares.info/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Goulder, Lawrence H. & Summers, Lawrence H., 1989.
"Tax policy, asset prices, and growth : A general equilibrium analysis,"
Journal of Public Economics,
Elsevier, vol. 38(3), pages 265-296, April.
- Lawrence H. Goulder & Lawrence H. Summers, 1987. "Tax Policy, Asset Prices, and Growth: A General Equilibrium Analysis," NBER Working Papers 2128, National Bureau of Economic Research, Inc.
- Timothy Besley & Ian Preston & Michael Ridge, 1993.
"Fiscal Anarchy in the U.K.: Modelling Poll Tax Noncompliance,"
NBER Working Papers
4498, National Bureau of Economic Research, Inc.
- Besley, Timothy & Preston, Ian & Ridge, Michael, 1997. "Fiscal anarchy in the UK: Modelling poll tax noncompliance," Journal of Public Economics, Elsevier, vol. 64(2), pages 137-152, May.
- Timothy Besley & Ian Preston & Michael Ridge, . "Fiscal anarchy in the UK: modelling poll tax noncompliance," Public Policy Discussion Papers 96-02, Economics and Finance Section, School of Social Sciences, Brunel University.
- Farrow, Scott, 1995. "The dual political economy of taxes and tradable permits," Economics Letters, Elsevier, vol. 49(2), pages 217-220, August.
- Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
- Peter Cramton & Suzi Kerr, 1999. "The Distributional Effects of Carbon Regulation: Why Auctioned Carbon Permits are Attractive and Feasible," Papers of Peter Cramton 99eedecr, University of Maryland, Department of Economics - Peter Cramton, revised Feb 1998.
- Margaret Wilkinson, 1994. "Paying for public spending: is there a role for earmarked taxes?," Fiscal Studies, Institute for Fiscal Studies, vol. 15(4), pages 119-35, November.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
- Jørgen Aasness & Torstein Bye & Hans Terje Mysen, 1995.
"Welfare Effects of Emission Taxes in Norway,"
148, Research Department of Statistics Norway.
- Paul Koutstaal & Andries Nentjes, 1995. "Tradable Carbon Permits in Europe: Feasibility and Comparison with Taxes," Journal of Common Market Studies, Wiley Blackwell, vol. 33(2), pages 219-233, 06.
- Lovins, Amory B, 1996. "Negawatts : Twelve transitions, eight improvements and one distraction," Energy Policy, Elsevier, vol. 24(4), pages 331-343, April.
- John Pezzey & Andrew Park, 1998. "Reflections on the Double Dividend Debate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 539-555, April.
- Fischer, Carolyn & Toman, Michael & Kerr, Suzi, 1998.
"Using Emissions Trading to Regulate U.S. Greenhouse Gas Emissions: An Overview of Policy Design and Implementation Issues,"
dp-98-40, Resources For the Future.
- Fischer, Carolyn & Kerr, Suzi & Toman, Michael, 1998. "Using Emissions Trading to Regulate U.S. Greenhouse Gas Emissions: An Overview of Policy Design and Implementation Issues," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 453-64, September.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000.
" What Do We Know about Investment under Uncertainty?,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 14(2), pages 119-53, April.
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, School of Economics, University of Kent.
- Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
- Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
- Franz Wirl & Wolfgang Orasch, 1998. "Analysis of United States' Utility Conservation Programs," Review of Industrial Organization, Springer, vol. 13(4), pages 467-486, August.
- S. Proost & D. Regemorter, 1995. "The double dividend and the role of inequality aversion and macroeconomic regimes," International Tax and Public Finance, Springer, vol. 2(2), pages 207-219, August.
- Herman Vollebergh & Jan Vries & Paul Koutstaal, 1997. "Hybrid carbon incentive mechanisms and political acceptability," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 43-63, January.
- Karl Hausker, 1992. "The politics and economics of auction design in the market for sulfur dioxide pollution," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 11(4), pages 553-572.
- Zodrow, George R., 1985. "Optimal tax reform in the presence of adjustment costs," Journal of Public Economics, Elsevier, vol. 27(2), pages 211-230, July.
- Goulder, Lawrence H. & Schneider, Stephen H., 1999. "Induced technological change and the attractiveness of CO2 abatement policies," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 211-253, August.
- Adam Rose & Shih-Mo Lin, 1995. "Regrets or No Regrets -- That is the Question: Is Conservation an Costless CO2 Mitigation Strategy?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 67-88.
- Sutherland, Ronald J, 1996. "The economics of energy conservation policy," Energy Policy, Elsevier, vol. 24(4), pages 361-370, April.
- John Pezzey, 1992. "The Symmetry between Controlling Pollution by Price and Controlling It by Quantity," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 983-91, November.
When requesting a correction, please mention this item's handle: RePEc:ags:aare01:125832. 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: (AgEcon Search)
If references are entirely missing, you can add them using this form.