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Using contests to allocate pollution rights

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  • Hanley, Nicholas
  • Kornienko, Tatiana
  • Mackenzie, Ian A

Abstract

In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradeable permit market. We argue that this mechanism has a number of benefits over auctioning and grandfathering. Using this mechanism efficiently distributes permits, allows for the attainment of a sec- ondary policy objective and has the potential to be more politically appealing than existing alte rnatives.

Suggested Citation

  • Hanley, Nicholas & Kornienko, Tatiana & Mackenzie, Ian A, 2008. "Using contests to allocate pollution rights," Stirling Economics Discussion Papers 2008-21, University of Stirling, Division of Economics.
  • Handle: RePEc:stl:stledp:2008-21
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    File URL: http://hdl.handle.net/1893/513
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    References listed on IDEAS

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    Cited by:

    1. Zhou, P. & Wang, M., 2016. "Carbon dioxide emissions allocation: A review," Ecological Economics, Elsevier, vol. 125(C), pages 47-59.
    2. Laura Rodríguez-Fernández & Ana Belén Fernández Carvajal & María Bujidos-Casado, 2020. "Allocation of Greenhouse Gas Emissions Using the Fairness Principle: A Multi-Country Analysis," Sustainability, MDPI, Open Access Journal, vol. 12(14), pages 1-15, July.
    3. Wang, Ge & Zhang, Qi & Li, Yan & Mclellan, Benjamin C., 2019. "Efficient and equitable allocation of renewable portfolio standards targets among China's provinces," Energy Policy, Elsevier, vol. 125(C), pages 170-180.
    4. Ciardiello, F. & Genovese, A. & Simpson, A., 2019. "Pollution responsibility allocation in supply networks: A game-theoretic approach and a case study," International Journal of Production Economics, Elsevier, vol. 217(C), pages 211-217.
    5. Liu, Beibei & He, Pan & Zhang, Bing & Bi, Jun, 2012. "Impacts of alternative allowance allocation methods under a cap-and-trade program in power sector," Energy Policy, Elsevier, vol. 47(C), pages 405-415.
    6. Zhu, Bangzhu & Jiang, Mingxing & He, Kaijian & Chevallier, Julien & Xie, Rui, 2018. "Allocating CO2 allowances to emitters in China: A multi-objective decision approach," Energy Policy, Elsevier, vol. 121(C), pages 441-451.
    7. Gersbach, Hans & Winkler, Ralph, 2011. "International emission permit markets with refunding," European Economic Review, Elsevier, vol. 55(6), pages 759-773, August.
    8. Yang, Lisha & Li, Yutianhao & Liu, Hongxun, 2021. "Did carbon trade improve green production performance? Evidence from China," Energy Economics, Elsevier, vol. 96(C).
    9. Francesco Ciardiello & Andrea Genovese & Andrew Simpson, 2020. "A unified cooperative model for environmental costs in supply chains: the Shapley value for the linear case," Annals of Operations Research, Springer, vol. 290(1), pages 421-437, July.

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    Keywords

    Rank-order contests; pollution permits; initial allocation;
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