Emission Reduction and Profit-Neutral Permit Allocations

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe present paper addresses two policy objectives that the environmental regulator aims to accomplish: to implement a market for permits and make regulation acceptable for businesses. Profit-neutral permit allocations are defined as the number of permits that the regulator should give for free so that profits after regulation (i.e. profits that the firm realizes in the market for products plus the value of the allowances granted for free) are equal to profits before regulation. The paper demonstrates that a low number of free allowances is sufficient to meet these two goals. Moreover, even when the reduction is high, the regulator can fully offset losses if the concerned sectors are not in a monopoly context.The suggested model is developed by assuming that firms compete "à la Cournot", use polluting technologies and the demand function is iso-elastic. It is then illustrated by the first two phases of the EU Emissions Trading System.

Perspectives on the Economics of the Environment in the Shadow of Coronavirus

“…41 "Polluter bailouts and lobbying during Covid-19 pandemic", The Guardian, April 17, 2020. 42 Burkey and Durden (1998) and Joskow and Schmalensee (1998) have detailed how firms can influence the regulator's decisions in the context of pollution rights markets, while Bovenberg and Goulder (2001), Hepburn et al (2013) and Nicolaï (2019) have shown that few permits are sufficient to neutralize the losses in profits and make the implementation of pollution permits acceptable. 43 On March 16, the Czech Prime Minister, Andrej Babis said that the European Green Deal should be put to one side.…”

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