AEM 2500 2010 Lec 25 Tradable Pollution Permits - theory sv

AEM 2500 2010 Lec 25 Tradable Pollution Permits - theory sv...

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History of Pollution Allowance (Permit) Trading •S u ggested independently by a sociologist, Dales (1967) with respect to water pollution and economist, Crocker (1966) with respect to air pollution. Both explicitly built on property rights bargaining concepts of Coase (1960). – Crocker envisioned “efficient” trade of pollution rights between polluters and pollutees. – Dales focused on “cost-effectiveness” trade of pollution rights between polluters. • Montgomery (1972), building upon Dales’ idea, proved in an economic-theoretic framework that a pollution licensing system could achieve abatement at least cost assuming standard perfectly competitive markets assumptions.
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Allowances (Permits) vs. Credits • In the tradable pollution literature and policy, there are two types of markets. – Tradable pollution credits are created when a pollution source duces its emissions below some source- pecific target reduces its emissions below some source specific target. • Should the actual level of pollutants emitted by the discharger fall below the amount allowed, the discharger earns a credit which can
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AEM 2500 2010 Lec 25 Tradable Pollution Permits - theory sv...

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