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Moral considerations in trading pollution permits

Listed author(s):
  • Eyckmans, Johan


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

  • Kverndokk, Snorre


    (Ragnar Frisch Centre for Economic Research Oslo, Norway)

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.

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Paper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2008/12.

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Length: 31 pages
Date of creation: Feb 2008
Publication status: published in Ecological Economics, Vol. 69(9), 2010, pp. 1814-1823
Handle: RePEc:hub:wpecon:200812
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