Allocation of CO2 Emissions Permits: A General Equilibrium Analysis of Policy Instruments

What are the effects of different ways of allocating CO2 emissions permits under a tradable permit scheme? Numerical simulations show that using the permit revenue to lower existing taxes implies by far the lowest welfare cost but also a large reduction in employment in energy-intensive sectors and substantial stranded costs. Grandfathering the permits compensates owners for losses on stranded investments but comes at a welfare cost and does not mitigate the adjustment imposed on the economy. Finally, distributing the permits according to market shares reduces the degree of sectoral adjustment but also comes at a high welfare cost.

[1]  Dallas Burtraw,et al.  The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting , 1998 .

[2]  D. Burtraw.  Cost Savings, Market Performance, and Economic Benefits of the U.S. Acid Rain Program , 1998 .

[3]  Robert N. Stavins,et al.  What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading , 1998 .

[4]  Paul L. Joskow,et al.  The Political Economy of Market‐Based Environmental Policy: the U.S. Acid Rain Program1 , 1998, The Journal of Law and Economics.

[5]  C. Fischer,et al.  Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards , 2001 .

[6]  L. Goulder,et al.  When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets , 1996 .

[7]  Gert Tinggaard Svendsen,et al.  A general model for CO2 regulation: the case of Denmark , 1998 .

[8]  W. E. G. Salter,et al.  Productivity and Technical Change. , 1961 .

[9]  Glenn W. Harrison,et al.  Using dynamic general equilibrium models for policy analysis , 2000 .

[10]  R. Mooij,et al.  Environmental Taxes, International Capital Mobility and Inefficient Tax Systems: Tax Burden vs. Tax Shifting , 1998 .

[11]  Alan S. Manne,et al.  The Costs of Stabilizing Global C02 Emissions: A Probabilistic Analysis Based on Expert Judgments* , 1994 .

[12]  Ian W. H. Parry,et al.  A second-best evaluation of eight policy instruments to reduce carbon emissions , 1999 .

[13]  S. Sorrell,et al.  Pollution for Sale , 1999 .

[14]  A. Atkeson,et al.  Models of Energy Use: Putty-Putty Versus Putty-Clay , 1994 .

[15]  L. Goulder,et al.  Environmental taxation and the double dividend: A reader's guide , 1995 .

[16]  Thomas F. Rutherford,et al.  Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax , 1999 .