8 - . Permits: Implementation Issues Initial allocation of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
. Permits: Implementation Issues Initial allocation of permits o To begin a permit trading system, firms need to have permits to trade. The initial distribution can be done in several ways. The government can auction permits to highest bidder. At least initially, additional trading shouldn’t be needed, as permits go to firms willing to pay the most. Raises revenue for the government. Equal distribution among firms. May seem fairer, but what if firms are of different sizes. Historical emissions rates (more permits to bigger polluters). For example, if want to reduce pollution by 10%, give each firm permits equal to 90% of their current emissions. However, this penalizes early actors. Should firms that have already reduced get fewer permits? Also, combined systems are possible (e.g. hold back some permits for auction). o Note that firms will prefer getting the permits for free, as it gives them an additional asset. Auctioning permits makes the plan more like a tax. Thus, free distribution is more politically palatable. o Also, note that if the market is competitive, the market should yield an efficient solution no matter what the initial allocation. However, the effects on individual firms (e.g. who benefits by selling permits, versus needing to buy them), will be different. Establishing trading rules o For a market to work, transactions costs must be low. o However, at the same time, monitoring and enforcement will be necessary. Need to track both emissions and the number of permits each firm has. o Who should be able to participate? Should environmental groups or private individuals be able to buy permits and then not use them? The EU Emissions Trading Scheme (EU-ETS) is a good example of this. The EU faces an overall cap on carbon emissions from Kyoto. From this, the EU has specified the industries that will participate in trading (electric utilities, oil refineries, coke ovens, iron & steel, cement kilns, glass manufacturing, ceramics manufacturing, and the pulp and paper industry) Each country gets allowances based on its national cap in Kyoto. It faces two allocation decisions: 1. Total allowances are spread between the trading & non- trading sector 2. Permits in the trading sector must be allocated among individual firms. Issues:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1. Difficult to make projects about price, because supply of permits was not known until countries made allocations between the trading and non-trading sectors. 2. Also makes it hard for an individual country to control emissions from its trading sector, because market prices will be determined by the allocation decisions of all countries. 3.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/05/2012 for the course ECON 332 taught by Professor Hilarysigman during the Fall '11 term at Rutgers.

Page1 / 6

8 - . Permits: Implementation Issues Initial allocation of...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online