The efficiency of decentralized environmental policies under global pollution and tradable emission permits

Abstract

We build a two asymmetric regions model with cross‐border pollution related to production. Each region issues emission permits and revenues from their sales finance public pollution abatement. The decentralized level of emission permits is efficient when permits are interregionally tradable and cross‐border pollution is perfect. This result is robust in a variety of cases—for example, when (i) capital is immobile or internationally mobile or only mobile between the two regions, and (ii) revenue from permits sales is transferred to a federal authority.

Strategic capital taxation, tradable emission permits and global pollution

“…A similar conclusion is reached by Fell and Kaffine (2014), who show that, in the presence of capital retirement, the Ogawa and Wildasin (2009) efficiency result ceases to hold. In a model of asymmetric regions, Tsakiris et al (2017) demonstrate that non-cooperatively setting intra-regionally or inter-regionally tradable emission permits is always inefficient when the revenue from the emission permits are lump-sum distributed. However, Tsakiris et al (2018), show in a similar model that, when revenue from permits finances the provision of public pollution abatement, then the decentralized setting of inter-regionally tradable emission permits is efficient.…”

“…In a model of asymmetric regions, Tsakiris et al (2017) demonstrate that non‐cooperatively setting intra‐regionally or inter‐regionally tradable emission permits is always inefficient when the revenue from the emission permits are lump‐sum distributed. However, Tsakiris et al (2018), show in a similar model that, when revenue from permits finances the provision of public pollution abatement, then the decentralized setting of inter‐regionally tradable emission permits is efficient. All these noted studies focus on the use of a single policy instrument.…”

Phased Impacts of China’s Dual-Credit Policy on R&D

“…Second, credits that use rules of "free trade and one-way offset" are substitutes and link with the subsidized policy in favor of enhancing long-term anticipation of automakers' R&D innovation profits. Tradable NEV + is essentially a class of pollution rights trading providing long-term incentives to passenger car enterprises through market mechanisms to compensate enterprises' energy-saving and emission reduction behaviors (Tsakiris et al, 2018). On the one hand, credit calculation and offset rules are not only the law enforcement basis for government to impose penalties but also the policy basis for manufacturers to earn NEV government subsidies after phasing out the NEV subsidy.…”

Strategic Export Motives and Linking Emission Markets

“…In the symmetric case where there is full auctioning the solution converges to e¢ ciency. Following the mechanism of Gersbach and Winkler (2011), Tsakiris et al (2018) argue that in a trade model of symmetric countries of perfect competition and perfectly transboundary pollution environmental policy can be tighter. In the absence of this scheme Holtsmark and Sommervoll (2012) and Lapan and Sikdar (2019) …nd that internationally tradable permits lead to higher pollution compared to non-tradable permits in the case where there is intra-industry trade 1 Nannerup (2001) and Eichner and Pethig (2009) argue that even if regulation is restricted by an international agreement, the governments may favor the exporting against the non-exporting sectors.…”