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Moral considerations in trading pollution permits

Author

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  • Eyckmans, Johan

    (Hogeschool-Universiteit Brussel (HUB), Belgium
    Katholieke Universiteit Leuven, Belgium)

  • Kverndokk, Snorre

    (Ragnar Frisch Centre for Economic Research Oslo, Norway)

Abstract

In this paper we investigate how moral considerations, modelled as identity effects, affects an endogenous pollution permit trading equilibrium, in which governments choose in a non-cooperative way the amount of permits they allocate to their domestic industries. Politicians might feel reluctant to allow unlimited permit trading and/or may prefer that abatement is undertaken domestically due to ethical motivation. However, once governments have chosen permit allocations, firms trade these permits in an international competitive permit market without moral restraints. We show that governments’ moral concerns may actually increase global emissions but this result depends on the precise formulation of the identity function. Finally, we explore how exogenous technological change affects endogenous permit trading equilibria under identity considerations. We show that decreasing costs of abatement technologies may lead countries to overcome their reluctance to trading emission permits.

Suggested Citation

  • Eyckmans, Johan & Kverndokk, Snorre, 2008. "Moral considerations in trading pollution permits," Working Papers 2008/12, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    • Handle: RePEc:hub:wpecon:200812
    DOI: 10.1016/j.ecolecon.2010.04.020
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    Cited by:

    1. Kverndokk, Snorre & Rose, Adam, 2008. "Equity and Justice in Global Warming Policy," International Review of Environmental and Resource Economics, now publishers, vol. 2(2), pages 135-176, October.

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