International Emission Permit Markets with Refunding
Swiss Federal Institute of Technology Zurich, (CER-ETH); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research
January 6, 2011
European Economic Review, Vol. 55, pp. 759-773, 2011
We propose a blueprint for an international emission permit market such as the EU trading scheme. Each country decides on the amount of permits it wants to offer. A fraction of these permits is freely allocated, the remainder is auctioned. Revenues from the auction are collected in a global fund and reimbursed to member countries in fixed proportions. We show that international permit markets with refunding lead to outcomes in which all countries tighten the issuance of permits and are better off compared to standard international permit markets. If the share of freely allocated permits is sufficiently small, we obtain approximately socially optimal emission reductions.
Number of Pages in PDF File: 34
Keywords: climate change mitigation, global refunding scheme, international permit markets, international agreements, tradeable permits
JEL Classification: H23, Q54, H41Accepted Paper Series
Date posted: March 5, 2011 ; Last revised: September 1, 2011
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