Enforcement and Environmental Quality in a Decentralized Emission Trading System
This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition.
|Date of creation:||Dec 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Corso Magenta, 63 - 20123 Milan|
Web page: http://www.feem.it/
More information through EDIRC
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.:
- Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
- Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November.
- Ulph, Alistair Mitchell, 1994. "Strategic Environmental Policy and International Trade - The Role of Market Conduct," CEPR Discussion Papers 1065, C.E.P.R. Discussion Papers.
- John K. Stranlund, 2006.
"The Regulatory Choice of Noncompliance in Emissions Trading Programs,"
2006-7, University of Massachusetts Amherst, Department of Resource Economics.
- John Stranlund, 2007. "The regulatory choice of noncompliance in emissions trading programs," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(1), pages 99-117, September.
- Emilson Silva & Xie Zhu, 2008. "Global trading of carbon dioxide permits with noncompliant polluters," International Tax and Public Finance, Springer, vol. 15(4), pages 430-459, August.
- Ulph, Alistair, 2000. "Harmonization and Optimal Environmental Policy in a Federal System with Asymmetric Information," Journal of Environmental Economics and Management, Elsevier, vol. 39(2), pages 224-241, March.
- Ulph, A., 1994. "Strategic environmental policy and international trade: the role of market conduct," Discussion Paper Series In Economics And Econometrics 9415, Economics Division, School of Social Sciences, University of Southampton.
- Hilary Sigman, 2010.
"Monitoring and Enforcement of Climate Policy,"
NBER Working Papers
16121, National Bureau of Economic Research, Inc.
- Henry N. Butler, 1996. "Using Federalism to Improve Environmental Policy," Books, American Enterprise Institute, number 53022, April.
- Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
- Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
- Ulph, Alistair, 1998. "Political institutions and the design of environmental policy in a federal system with asymmetric information," European Economic Review, Elsevier, vol. 42(3-5), pages 583-592, May.
- Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
- Malik, Arun S, 1992. "Enforcement Costs and the Choice of Policy Instruments for Controlling Pollution," Economic Inquiry, Western Economic Association International, vol. 30(4), pages 714-21, October.
- G T Svendsen, 1998.
"The US Acid Rain Program: Design, Performance, and Assessment,"
Environment and Planning C,
, vol. 16(6), pages 723-734, December.
- G T Svendsen, 1998. "The US Acid Rain Program: design, performance, and assessment," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 16(6), pages 723-734, December.
- Carlos Chavez & John K. Stranlund, 2000.
"Enforcing Transferable Permit Systems in the Presence of Market Power,"
04-2000, Departamento de Economía, Universidad de Concepción.
- Carolos Chavez & John Stanlund, 2003. "Enforcing Transferable Permit Systems in the Presence of Market Power," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(1), pages 65-78, May.
- Alessio D Amato & Edilio Valentini, 2011. "A Note on International Emissions Trading with Endogenous Allowance Choices," Economics Bulletin, AccessEcon, vol. 31(2), pages 1451-1462.
- John Stranlund & Christopher Costello & Carlos Chávez, 2005. "Enforcing Emissions Trading when Emissions Permits are Bankable," Journal of Regulatory Economics, Springer, vol. 28(2), pages 181-204, 09.
- van Egteren, Henry & Weber, Marian, 1996. "Marketable Permits, Market Power, and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 161-173, March.
- Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
- Keeler, Andrew G., 1991. "Noncompliant firms in transferable discharge permit markets: Some extensions," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 180-189, September.
- Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
- Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, vol. 18(2), pages 113-31, September.
- Kruger, Joseph & Oates, Wallace E. & Pizer, William A., 2007. "Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy," Discussion Papers dp-07-02, Resources For the Future.
- Malik, Arun S., 2002. "Further Results on Permit Markets with Market Power and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 371-390, November.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2008.97. 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: (barbara racah)
If references are entirely missing, you can add them using this form.