Transaction Costs and Tradeable Permits

Stavins, Robert N.

doi:10.1006/jeem.1995.1036

Cited by 721 publications

(392 citation statements)

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“…Because compliance credit markets typically operate 'over-the-counter', it is important for regulators to ensure that parties can find trading partners with relative ease, as well as determine whether credits on the market are valid. 9 Transparency is also essential for the operation of an efficient credit trading market, and regulatory efforts aimed at decreasing transaction costs and increasing transparency in credit trading markets can significantly increase the policy's efficiency (Stavins, 1995).…”

Section: Designing An Lcfsmentioning

confidence: 99%

The design and economics of low carbon fuel standards

Lade

Lawell

2015

Research in Transportation Economics

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Low carbon fuel standards (LCFS) are increasingly common policy tools used to decrease emissions and increase the penetration of renewable energy technologies in the transportation sector. In this paper, we discuss important design elements of the policy, and provide a background on prominent policies that are currently enacted or proposed. The economics of an LCFS are presented using a simple conceptual model, and the economic literature on the policy is reviewed. Important opportunities to build on the extant literature are identified, including studying the role of low carbon fuel standards in spurring technical change, and the interaction of the policy with other federal and state transportation policies. AbstractLow-carbon fuel standards (LCFS) are increasingly common policy tools used to decrease emissions and increase the penetration of renewable energy technologies in the transportation sector. In this paper, we discuss important design elements of the policy, and provide a background on prominent policies that are currently enacted or proposed. The economics of an LCFS are presented using a simple conceptual model, and the economic literature on the policy is reviewed. Important opportunities to build on the extant literature are identified, including studying the role of low carbon fuel standards in spurring technical change, and the interaction of the policy with other federal and state transportation policies.JEL Codes: H23; Q40; Q50

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Section: Designing An Lcfsmentioning

confidence: 99%

The design and economics of low carbon fuel standards

Lade

Lawell

2015

Research in Transportation Economics

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“…Transaction costs were kept to a minimum when the potential trading partners were already experienced at striking deals with one another (the program of lead-rights trading among refineries (28,29)) or when a broker entered, in particular, when the government took on a fee-less brokerage role (the New Jersey Pinelands transferable development rights program (30)). A broker may provide information about firms' pollution control options and potential trading partners, may maintain computer models to predict the supply and demand for permits to provide forecasting services (26), may carryout air-quality modeling required for trades between noncontiguous sources of non-uniformly mixed pollutants (9), etc. In China, the local Environmental Protection Bureau (EPB) is the most suitable agency to play a brokerage role and guide discharge permit transactions.…”

Section: Discussionmentioning

confidence: 99%

Inter-zonal Tradable Discharge Permit System to Control Water Pollution in Tianjin, China

Cao

Ikeda

2005

Environ. Sci. Technol.

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In recent years, Chinese environmental authorities have expressed interest in the use of Tradable Discharge Permits (TDP) as a regulatory instrument to control pollutant emissions. Environmental professionals still have not had enough experience, however, in designing and managing TDP systems, especially for non-uniformly dispersed pollutants. As an empirical study, this paper proposes an interzonal TDP system and analyzes its effectiveness in cost savings and environmental protection for reducing water pollutant COD (chemical oxygen demand) in Tianjin, China. Zonal permit system (ZPS) and emission permit system (EPS) are discussed for comparison. The inter-zonal TDP system is demonstrated to improve cost efficiency by allowing permit trades between zones, as long as water quality constraints are satisfied. The transactions are assumed to proceed in a multilateral sequential way and are simulated with a circularly running linear programming (LP) model. The simulation of permit transactions among 20 firms shows that to reach the same COD removal target, ZPS, interzonal TDP system, and EPS lowered the total reduction cost by 12.8%, 14.6%, and 15.8%, respectively. EPS, however, brought about "hot spots" problem. Finally, the transaction costs and the sensitivity of the three TDP systems to changes in both COD reduction rate and the initial permit allocation are discussed, and policy implications are addressed. IntroductionA transferable discharge permit (TDP) system is one of the economic instruments for pollution control. It has been successfully used in the reduction of SO2 (sulfur dioxide) in the United States and is being tried worldwide in efforts to abate other pollutants (CO2, BOD (biochemical oxygen demand), etc.) by virtue of its cost efficiency and flexibility in attaining control targets (1, 2).In China, the TDP system is attracting more and more attention. Environmental management measures of "total emission control", "declaration and registration of pollutant discharges", and "pollutant discharge permits" provide support for implementation of the TDP system from the perspective of both policy and relative information and data (3). Although the regulatory/administrative framework to institute a TDP system is yet to be developed in China, several cases of permit transfers have occurred in Shanghai, Beijing, and Zhejiang that have involved water pollutants such as COD (chemical oxygen demand), suspended solids, copper, nickel, and zinc (4, 5). In 2002, the State Environmental Protection Administration (EPA) of China started a pilot project of SO2 emission trading in some provinces and cities. Some pilot provinces or cities, such as the province of Jiangsu or the city of Taiyuan, have formulated a provisional method for managing SO2 emission trading (5).The TDP scheme is still in its beginning stages in China. The successful experiences of foreign countries help formulate general guidelines for permit trading; whereas, empirical studies in specific regions for specific pollutants in China could provide mor...

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“…Also, different types of allocation mechanisms may have a different mix of costs or a difference in their relative importance which may help in explaining the fundamental determinants of transaction costs. Examples of types of transaction costs are discussed by a number of authors [Dahlman, 1979;Stavins, 1995;Foster and Hahn, 1993;Griffin, 1991;Conlisk, 1996].…”

Section: Framework For Transaction Cost Measurementmentioning

confidence: 99%

A framework for estimating the transaction costs of alternative mechanisms for water exchange and allocation

McCann

Easter

2004

Water Resources Research

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[1] Alternative mechanisms for water transfers will differ in the types of transaction costs incurred as well as their magnitudes and incidence. This article presents a framework for including transaction costs as well as transfer costs in the evaluation of alternative mechanisms. The work on measurement of transaction costs associated with water markets has underestimated these costs by only focusing on the costs incurred once a market exists. The framework presented here also includes the costs associated with the development of a market mechanism. Once the appropriate framework has been developed, there are a number of measurement issues involved with incorporating transaction costs in the overall assessment of the efficiency of water allocation mechanisms. While the costs involved with the final transaction are relatively easy to measure, those involved with the initial information gathering, policy enactment, and design and implementation of a formal market mechanism are rarely documented. Similarly, it is much easier to measure transaction costs after the policy is implemented; however, it is necessary to predict costs to inform decision-making and improve policy design.

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Transaction Costs and Tradeable Permits

Cited by 721 publications

References 0 publications

The design and economics of low carbon fuel standards

The design and economics of low carbon fuel standards

Inter-zonal Tradable Discharge Permit System to Control Water Pollution in Tianjin, China

A framework for estimating the transaction costs of alternative mechanisms for water exchange and allocation

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